Working out with Dean Singleton

It's hard to find anyone bullish about the newspaper industry, which makes the news out last week that MediaNews had negotiated forbearance agreements with its major creditors well worth watching. Unless lenders have confidence that a company will pay its bills in full and won't slip into arrears again, they are going to expect something in return for granting a delay in its payments.

Martin Langeveld at Nieman Journalism Lab thinks the forbearance deal might be the start of a restructuring process. The lenders will first demand MediaNews pay off as much of its loan as possible and then will want to see a plan that ensures the newspaper chain won't default again. Langeveld writes:

This confirms that MediaNews is in default — forbearance agreements are designed to postpone foreclosure, and lenders don’t threaten to foreclose unless the borrower is in default of one or more loan covenants. Covenants breaches can entail failure to maintain certain balance sheet ratios rather than actually being short of cash, but they’re serious issues and call into question the ability of the enterprise to maintain its “going concern” status...

So, how do you restructure $1 billion in debt? The workout team at Bank of America will be looking for cash — as much cash as the banks can get to pay down the notes. Ultimately, the banks may need to take a haircut (write down the value of the loan), but first they’ll squeeze as much cash out as can be gotten. Usually in these situations, cash is raised by selling assets, but MediaNews’ assets consist mainly of newspapers, and newspaper buyers are non-existent today, for all practical purposes. The banks know this, Dean Singleton knows this, so what’s the solution?

Langeveld has his own list of solutions - from selling off printing plants and real-estate holdings (LANG is a pioneer on this front), to cutting production at most papers to one or two days a week, to launching commuter tabloids in busy markets such as Salt Lake City, Denver and the Bay Area.

Whether these are the right solutions is open for debate. But it does seem as if Singleton is out of options to contain the bleeding. He's already cut staff to the bone at most papers, outsourced customer care, canceled benefits, forced furloughs and, in Southern California, consolidated copy desks and frozen vacation time.

I asked Ron Kaye, former editor of the Los Angeles Daily News, what he thought might be next for the LANG papers - which have already suffered the worst of the cutbacks and have little left to give. His answer took me aback. Kaye's convinced Singleton will leave California - and soon. He surmises MediaNews will do deals with Belo, Hearst and the Los Angeles Times to unload its properties and then diminish to the East.

"Every way I look at it, he'll be out of SoCal by the end of June," Kaye said. "I can't see any other story line, for what it's worth."

MediaNews has said nothing to indicate it wants leave California. To the contrary, the company has announced plans to test its new "I-News" system at the Daily News this summer. So it may be too early to forecast a flight from California, but with the constant chatter out of the LANG offices that "everything's on the table," the workout MediaNews is undergoing with its creditors is indeed well worth watching.