Tuesday, March 23, 2010

Papers exiting bankruptcy dump 75% of debt

The four newspaper companies that have exited bankruptcy to date have shed three-quarters of their of debt, collectively trimming nearly $2 billion in burdensome obligations.

In so doing, the publishers will take some pressure off their newspapers to produce aggressive profits during an historic – and ongoing – collapse in advertising sales. But that doesn’t mean the staffs at those newspapers can rest easy.

As detailed in the Bankruptcy Scorecard below, the publishers who unburdened their balance sheets through Chapter 11 are MediaNews Group, which chucked 82% of its debt; Minneapolis Star Tribune, which deep-sixed 79% of its debt; Morris Publishing Group, which dumped 69% of its debt, and Journal Register Co., which unloaded 68% of its debt.

Collectively, the foursome stiffed their lenders for $1.9 billion, or 74.5% of their outstanding debt. In most cases, lenders were persuaded to forgive a portion of the debt in exchange for an ongoing ownership stake in the companies, which will have value only if the companies can be sold somewhere down the line for more than they are worth today.

With the amenable settlement of these four bankruptcies, the cases of four more publishers remain to work through the federal bankruptcy courts. Together, the publishers in the pending cases are seeking relief from $14.3 billion in debt, though most of that sum is associated with the Tribune Co., which owes creditors nearly $13 billion.

While Freedom Communications appears to be progressing towards a prepackaged bankruptcy where creditors agree in advance to the size of their haircut and the future governance of the company, the final terms of the other three pending bankruptcies are less clear. The Philadelphia Newspapers, for example, have been engaged in a long-running tussle with creditors over who will control the company when it emerges from Chapter 11. The issue may be resolved on April 27 when the company is scheduled put up for auction.

The ninth of the nine publishers that have declared bankruptcy is the Sun-Times Media Group, which was discharged last year when it was purchased for a token sum by a group of Chicago businessmen. The paper, which had no debt prior to filing, went into bankruptcy because it was running out cash to fund its operations. The bankruptcy process helped STMG unwind a number of obligations, including millions of dollars in unpaid taxes.

Publishers are using bankruptcy to strip debt off their balance sheets to reduce the amount of cash they need to generate from operations to pay interest and principal on their obligations. The high debt loads carried by publishers prior to the collapse in advertising sales caused most companies to drastically cut staffing and other expenses to try to extract enough cash from their operations to stay current on their obligations.

As advertising plunged 43% from a high of $49 billion in 2005 to an estimated $28 billion in 2009, even the most determined publishers found they could not keep up with the obligations to their creditors. The significant reduction in debt enabled by Chapter 11 gives them a chance to start with significantly cleaner slates.

But neither pubishers, nor their employees, are out of the woods. The post-bankruptcy agreements struck between creditors and publishers call for all manner of stringent performance standards, not the least of which is exacting profit targets.

To the degree newspaper revenues continue to slide – as they appear to be doing by double-digit levels in the first months of this year – publishers will be challenged to deliver on the fresh promises they have made.

And that could lead to more of the production consolidation, job outsourcing, staff cutting and news hole shrinking that characterized the pre-Chapter 11 era.


Anonymous Jim Donnelly said...

Mmmm. Interesting. I come out of the Philadelphia area, where JRC is regrouping, the Inquirer will likely will face the same sort of creditor shareholding, and the tadpole of the market, Calkins Media, has combined its three dailies (formerly four) into one using a single press that was built with borrowed money. E pluribus unum? There may be an antitrust angle to this, too. Congrats on the E&P column, Alan.

7:22 AM  
Blogger James said...

Do the figures for Freedom include the Blackstone and the Providence Equity Partners write-downs which occurred prior to the Sept'09 bk filing?

9:51 AM  
Anonymous Anonymous said...

These companies are doomed. It's jsut a matter of time. Even unloading the debt won't change the bottom line. They can't make money in the long term, and the product is simply atrocious. Case closed.

11:14 AM  
Anonymous Anonymous said...

Newspaper brokers continue to tell newspaper owners they can sell a business for a lot of money when in reality newspaper companies are worth far less today then they were 10 years ago. Some brokers are telling small daily newspaper owners in economically depressed rural areas of the plains states there are buyers willing to pay 2 times annual gross revenues. Anyone willing to pay 2 times annual gross revenues for a small daily newspaper in an economically depressed area is going to lose a ton of money unless they pay for the business in cash and can handle zero debt load.

2:08 PM  
Anonymous Anonymous said...

I don't know quite how to address this, but who were those fools who lost all that money. Why would these debt-holders surrender much of their money? I can only guess they didn't use their own cash, or they would have been more parsimonious in handing out this way. To me, it is just further evidence that the madness of our debt markets continues, and that our underwriting standards are pure crap. Unfortunately, it is those who aren't participants in these deals who are paying the consequence in terms of layoffs, early retirements, downsizing and consolidations.

2:30 PM  
Anonymous ethicalMAC said...

In response to the comment about newspaper brokers, I am one, and I don't appreciate seeing all of us tarred with the same brush. First of all, reputable brokers use a more complex approach to valuation than a multiple of gross revenues. Cash flow multiples are the preferred currency in the M&A business. Secondly, markets and properties have unique dynamics that defy the kind of formula described. Some dailies (and perhaps more weeklies) are doing very well, and while it is clear they won't bring as much as they would have three or four years ago, they have significant value based on the strength of their franchise, past and recent performance, market share and realistic expectations of future performance, to name just a few factors. Only an unethical broker would misrepresent value to an owner, hoodwink an unsophisticated buyer and proceed to close a transaction that would blow up in everyone's face. Brokers like that don't stay in business long.

8:33 PM  
Anonymous Anonymous said...

To ethicalIMAC: who was the ethical broker who put the $11 billion (now $13 billion) tag on the Tribune papers?

5:40 AM  
Anonymous Anonymous said...

Reputable or not, newspaper brokers still screwed up. Everyone associated with M&A in the industry screwed up. Expectations were horrifically flawed on a widespread basis. But that is not to say such overblown positive thinking wasn't rampant in other industries as well. The debt and hot air in balance sheets shed by newspapers is comparable to that of many companies that wound up in bankruptcy court over the past couple of years. The difference with newspapers, however, is that it is uncertain whether simply lightening the burdensome debt load will really fix the industry's underlying problems.

7:45 AM  
Anonymous Anonymous said...

It would be very interesting to know exactly how much equity the unsecured bondholders received in exchange for having their bonds vaporized.

One of the great obscenities of the BK process is just how much equity that the insiders (who blew up the company in the first place) still get to keep post BK.

2:09 PM  

Post a Comment

<< Home