The ugly season

As winter gives way to spring, newspaper buying sprees give way to debt payments.

First up, will Sam Zell be forced to sell his rented mule, the Los Angeles Times?

April 4, 2008
NEW YORK (Reuters) - Tribune Co is at risk of defaulting on its debt in as little as 18 months if the newspaper business deteriorates further, and it fails to unload more properties.

By some estimates, Tribune could fetch $1.6 billion for the Newsday daily paper and the Chicago Cubs baseball team and related properties, the assets it has already put on the block.

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Still, Tribune has nearly $4 billion in debt and interest payments due by the end of 2009, according to Gimme Credit analyst Dave Novosel, making it all but certain that the company will be forced to sell more marquee properties and make deeper cost cuts to avoid violating debt covenants.

Then there's this April 5 story from the NYT about the Journal Register Company, owner of the New Haven Register, forced to consider bankruptcy as a way to unload its massive debt:

If the company were to seek bankruptcy protection, as analysts said was possible, it would be a first in recent memory for a publicly traded newspaper company, John Morton, a longtime newspaper analyst, said.

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Journal Register’s troubles are more related to its debt load — about $625 million at the end of 2007 — than secular changes in the business.

Four years ago, the company paid $415 million for several Michigan dailies, whose fortunes declined as automobile manufacturers in Detroit cut their advertising budgets.

A newspaper chain biting off more than it could chew? That sounded familiar to a friend of mine who works for Dean Singleton's MediaNews. He sent along this article from October 2007 about the troubling level of debt held by MediaNews after it went on a spending spree to buy a substantial piece of the old Knight Ridder empire:

MediaNews spent $82.4 million to pay for interest in fiscal 2007, which was equal to 57 percent of operating cash flow, compared with the $55.6 million it spent in 2006 that added up to a whopping 72 percent of operating cash.

As of June 30, it owed a total of $1.12 billion. Of that, $331.8 million will be due over the next five years, with $787.1 million due after that.

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Meanwhile, MediaNews' declining advertising revenues have caused the Standard & Poor's rating agency to place the media giant on credit watch, with a possible downgrade unless financial results turn around, according to the Rocky Mountain News.

MediaNews, already on a starvation diet, has taken to carving out vital organs to help pay off the debt. As I noted in an earlier post, the consolidation of its Southern California newspapers had the effect of shuttering stand-alone publications.

Unless the economy makes a dramatic turn around, all three of these companies are likely to seek further constriction in the second quarter, making for a nasty summer. Zell will have to shed more of his Tribune holdings, JR will embrace bankruptcy protection, and Singleton will be looking for a third kidney to sell - meaning more pink slips before winter returns.