Strib default: What’s next
As long as the newspaper generates enough sales to cover its operating expenses, it is safe to bet its lenders will forbear for one simple reason: They don’t have any better ideas for managing the newspaper than the people running it now.
For the time being, therefore, the lenders and management will be stuck with one another, because:
:: It almost certainly would be impossible to peddle the newspaper to another operator at even its current indicated value of $125 million, or 25 cents on each of the 530 million dollars paid for it in December, 2006.
:: The liquidation of the presses, trucks, desks and electric pencil sharpeners would scarcely raise the $486 million (plus back interest) that would be necessary to extinguish the debt.
Since the paper first defaulted on a loan payment in June, it has been involved in ongoing negotiations with its lenders. The talks probably have covered such topics as cutting operating expenses, selling assets, extending the due dates of the loans and having the company pay higher interest rates.
If the discussions proceed fruitfully, the paper some day may announce an agreement similar to the one reached last week between McClatchy and its creditors. In that agreement, MNI chopped its dividend and accepted an interest rate that could run into double digits in the worst circumstances. At a 10% rate, the interest on MNI’s $2 billion in debt would be $200 million a year, or enough to compensate 2,000 employees whose salary and benefits averaged $100,000 apiece.
If management and the lenders at the Strib fail to come to terms, the company may file a Chapter 11 bankruptcy petition to seek court protection from the lenders and other creditors. Click here for details on what it means when a borrower is in default and here for background on the process and implications of bankruptcy.
Whether management informally bargains with creditors or formally seeks bankruptcy protection, the aim is the same: To buy the business enough time to improve its sales and streamline its operations to improve profitability.
So long as all parties feel the process is working, the business will remain a going concern. In the event the company can’t generate enough cash to pay employees, buy newsprint or fuel its fleet, it will hit the wall.
And someone will get a great deal on a used electric pencil sharpener.