CHICAGO (MarketWatch) – With the news that two more U.S. newspaper publishers have filed for Chapter 11 bankruptcy protection, analysts say it’s important to keep perspective on who is in trouble and who isn’t – a distinction many investors are too pessimistic to make right now.
Philadelphia Newspapers LLC and Journal Register Co. filed for bankruptcy protection over the weekend, two more ominous steps along an uncertain path for the industry. Four major newspaper publishers have now filed for bankruptcy since December. The parent of the Minneapolis Star Tribune filed for bankruptcy in January, on the heels of a similar filing from Tribune Co. a month earlier.
“If you make the bear case, as some people are, which is that newspaper advertising never goes up again, newspapers either have to do something dramatic to restructure the company to get the debt down, or they’re gone,” said Ed Atorino, newspaper analyst at Benchmark & Co.
Atorio noted that companies like New York Times Co.
“are trading as if they were in a dire situation, even though they’re not in imminent danger.”
“I think [those two companies] are going to be all right, but they have to get through this year and next,” he added.
New York Times shares declined 2% to close at $3.99, while Gannett slipped 1% to $3.66.
Analyst Dave Novosel at Gimme Credit says New York Times Co., with debt totaling $1.1 billion at the end of the fourth quarter, certainly has enough cash to stay away from the specter of bankruptcy this year. The company has suspended its dividend, and recently got an infusion of $250 million from Mexican billionaire Carlos Slim, increasing the likelihood that it can make debt payments scheduled for 2009 and a note that matures in March 2010.
New York Times Co. is also in advanced talks to sell the 19 floors it occupies in its midtown Manhattan headquarters to investment and management firm W.P. Carey & Co., and is pursuing a possible sale of its stake in New England Sports Ventures, which includes baseball’s Boston Red Sox.
Gannett’s great asset is its balance sheet, says Novosel. The company said last month that it expects to have about $3.7 billion in debt outstanding at the end of the first quarter.
“It isn’t that that the trends in advertising revenue or circulation are any better [than some of the smaller companies in trouble],” he said. “It’s just that they have the balance sheet to support themselves.”
Newspaper publishers McClatchy Co.
and Lee Enterprises
recently made arrangements with their bondholders that will buy them more time, but there’s no question that time is running out, Atorino says. Other companies, like Media General
“probably won’t make much money this year,” but don’t need to consider bankruptcy anytime soon, in the analyst’s view.
“What you need to have happen, either later this year, or sometime in 2010, is that the rate of decline in advertising has got to start to stabilize,” Atorino commented.
Until September, newspapers were already struggling to cope with a transition to online news consumption that had siphoned off classified and other advertising revenue, as well as circulation.
However, the worldwide financial collapse triggered by the bankruptcy of financial services firm Lehman Brothers pushed newspapers from a crisis into a catastrophe. Across the board year-over-year classified ad declines of more than 30% are now commonplace. At the same time, a tight credit environment has made it difficult for troubled newspapers to renegotiate some breathing room with their creditors.
“The problem for newspapers is that their difficulties are more secular than cyclical, so that even if the economy gets better, a lot of the increased advertising that results won’t be going to newspapers,” Novosel said.
Another problem is that as newspapers try to dig themselves out of a hole, they must try radical approaches, but nothing too radical – or they risk alienating their remaining subscribers. Going to an online-only model, for instance, would obviously cut down on overhead, but in the short-term, the resulting loss of all print revenue and paid circulation might be enough to destroy what’s left of creditors’ patience.
“Whatever you do, it had better work. If it doesn’t work, now you plunge yourself into greater leverage, or just have less financial flexibility,” said Novosel.
PNL, Journal Register Co. file for Chapter 11
Philadelphia Newspapers LLC, the privately held publisher of The Philadelphia Inquirer, the Philadelphia Daily News and Philly.com, said on Sunday that it was seeking Chapter 11 bankruptcy in response to what Chief Executive Brian Tierney called a “perfect storm” that prevents the company from meeting its debt obligations.
In a memo to employees posted at Poynter.org, Tierney said the combination of a “dramatic decline in total revenue, the worst economic conditions since the Great Depression and a debt structure which is out of line with current economic reality” forced the company to execute the filing.
Tierney assured staffers that “business will continue as usual” at the newspaper operations.
“Despite these difficult circumstances, we have been working towards an operational structure that can flourish once we get the debt restructured,” Tierney said in the memo.
The filing was made in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania, in Philadelphia.
Philadelphia Newspapers LLC is asking the court to approve as much as $25 million in debtor-in-possession financing from a number of lenders, the Philadelphia Daily News reported Monday.
On Saturday, Journal Register Co.
filed for Chapter 11 to implement a reorganization plan that it had negotiated with some of its lenders to cut the company’s debt by $420 million.
Journal Register owns 20 dailies, more than 180 non-daily publications and more than 200 Websites. The company’s daily papers include the New Haven, Conn., Register, the Trentonian of New Jersey, and the Record of Troy, N.Y.
Journal Register “intends to continue to operate as usual and does not anticipate any business interruption during the restructuring,” it said.
The plan has support from J.P. Morgan Chase and 26 of 37 lenders who are part of the company’s credit accord. The supporting lenders hold 77% of the face amount of the company’s debt under its credit agreement.
The company has divested unprofitable newspapers, cut staff and reduced other expenses, but none of these actions has been enough, Chairman and Chief Executive James W. Hall said in a statement.
“We intend to emerge from the Chapter 11 process stronger, leaner and more financially viable in the current environment,” Hall said.
Under the terms of the restructuring plan, each of Journal Register’s lenders will get a pro rata share of a $175 million Tranche A Term Loan Facility, a $100 million Tranche B Term Loan Facility and the common stock in the reorganized company, subject to dilution for future equity issuances.
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