Perilously funded papers hit the wall
The most precariously financed newspaper deals apparently are starting to hit the wall, wiping out equity investors and causing at least some lenders to try to sell their loans at distressed prices.
The lenders who provided the bonds for the $530 million purchase of the Minneapolis Star Tribune in 2006 have hired an investment bank to try to sell the loans at heavy discounts to either local investors or bottom-fishing hedge funds willing to take a risk on turning around the business, according to a report in Finance and Commerce, a Minnesota business magazine.
The magazine reports that the Strib’s debt, which amounts to about $430 million, is selling at prices no better than 53 cents on the dollar. Earlier this year, Avista Partners, the New York investment firm that joined publisher Chris Harte in providing equity funding for the deal, wrote off their $100 million investment.
Thus, the newspaper’s value appers to have dropped 40% in just 1½ years to approximately $218 million – assuming someone comes along to buy the newspaper’s debt at a 50% discount. That current estimated value is but 18% of the $1.2 billion that McClatchy paid for the paper when it acquired the property in 1998.
Elsewhere, the stock of Journal Register Co. plunged to a new low of 9 cents a share today after it evidently defaulted on its $640 million in debt. This effectively wipes out the investors who own more than 39 million shares of the company’s stock.
The lenders who provided the bonds for the $530 million purchase of the Minneapolis Star Tribune in 2006 have hired an investment bank to try to sell the loans at heavy discounts to either local investors or bottom-fishing hedge funds willing to take a risk on turning around the business, according to a report in Finance and Commerce, a Minnesota business magazine.
The magazine reports that the Strib’s debt, which amounts to about $430 million, is selling at prices no better than 53 cents on the dollar. Earlier this year, Avista Partners, the New York investment firm that joined publisher Chris Harte in providing equity funding for the deal, wrote off their $100 million investment.
Thus, the newspaper’s value appers to have dropped 40% in just 1½ years to approximately $218 million – assuming someone comes along to buy the newspaper’s debt at a 50% discount. That current estimated value is but 18% of the $1.2 billion that McClatchy paid for the paper when it acquired the property in 1998.
Elsewhere, the stock of Journal Register Co. plunged to a new low of 9 cents a share today after it evidently defaulted on its $640 million in debt. This effectively wipes out the investors who own more than 39 million shares of the company’s stock.
posted by Newsosaur at 3:31 PM
10 Comments:
Thanks for your outstanding blogging. You're doing a hell of a job.
They should try putting their properties on Craigslist's "for sale."
At what point do some significant newspapers start shutting down? Or being closed down? How long can Journal Register continue to publish its papers?
It cannot be helpful to Billy Dean Singleton to note that his Denver Post cash-cow is now bleeding. From the E.W. Scripps 2nd quarter report, we learn that the Denver JOA is turning sour. Scripps reported a loss of $2.7 million in the last quarter, compared to a profit of $900,000 a year ago. IMO, Scripps is probably in a position to handle that sort of a loss, but it can only add to the probably fatal problems Singleton is handling.
Also you could have added reports that the banks now have control over Blethen's Maine properties spending to your report on perilously funded papers.
I don't where the point is reached where these publishers realize they can't win by cutting. The headwinds of this economy are too strong.
Minneapolis is turning into a depressing horse race over which newspaper makes it first into bankruptcy court: Avista's Strib or Dean Singleton's Pioneer Press. Or will they both collapse together, exhausted by the fight, and leave the field open to some newcomer? I guess it is possible the outcome will be Minneapolis is left without a major metro daily.
Let us not forget that some newspapers have been bleeding for years and still publish...e.g, the SF Chronicle. But not all newspaper owners can absorb $1 million loss every week like Hearst.
The S.F. Chron has been claiming a million a week loss for the past few years before the latest down turn and oil increase. What could their losses be now?
Maybe they are hoping to acquire one of their competitors at a bargain and absorb their readers?
Hearst's SF strategy mystifies me, but I do not believe it involves acquiring competitors. I think Dean Singleton hoped Hearst would be interested in his BANG operation, but that has not been the case and BANG looks like it is going POOF. Hearst has reportedly been experimenting with some portable tabloid-sized newspaper that would be downloaded daily like Amazon's Kindle book reader. The operation is at Firstpaper in Palo Alto, Ca., and N.Y. But as long as newspapers give away their content on the Internet, I don't see how a business model requiring people to subscribe and download can work. But then I don't have a Wharton MBA.
Minneapolis won't be left without a newspaper. One or both of the papers will go bankrupt and then a new entity will emerge with ownership. Without the crushing debt load they took on, the new company should be able to make a profit. Granted not at the margins of the past but there's still money to be made.
Not to sound too cynical, but I think the wire services have already found ways around this problem: use local bloggers. Even for free.
Look at CNN's iReport for example. In a previous post, I mentioned the Thomson-Reuters-Yahoo! endeavor, You Witness News.
It is doubtful that local media will cut the folks who report the bulk of the hard local news. Politics, cops and business might be reported by fewer people, but those positions won't go away until (if) the outlets themselves do.
As for the wires, the place they can best compete is in the international news division. They can continue to pay local, in-country freelancers bottom-dollar for the photos that fill pages all over the world.
Indeed, it's the US/Europe bureaus that will be most expensive to maintain, and the hardest to outsource to freelancers or bloggers. Access and trust are just too difficult to work out.
But for the local Yuma (or Tucson, for that matter) dog-and-pony show coverage, sports pictures or restaurant reviews, why pay someone to generate the material, when so many would be perfectly willing to give it away? Enter iReport, You Witness News, etc.
On the local level, further consolidation is likely. We'll likely see lots of content-sharing partnerships on the horizon amongst smaller-market papers, as well as TV/radio stations. As newspapers create more and more multimedia content, whether good or bad, they blur the lines between print and broadcast.
Video from TV stations can now be delivered via a newspaper's Web site, and newspaper multimedia presentations are perhaps best served over the air. As such, all parties will rely on a 'local wire' to fill content gaps and "do more with less."
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