Is this good news? Bad news? What does it really mean? No idea. Editor & Publisher's Fitz & Jen have the best explanation I've seen so far. Please, help shed light on what this may mean for the rest of us.
One interesting piece to come of this: Lee was still dealing with a joint operating agreement between the St. Louis Post-Dispatch and the now defunct St. Louis Globe-Democrat, owned by Newhouse. Newhouse and Pulitzer shared the profits and expenses from the Post-Dispatch. Before Lee bought the Post-Dispatch in 2005, Pulitzer bought out 95 percent of Newhouse's interest. Lee finally got rid of that last 5 percent in this deal.
The memo from CEO Mary Junck:
February 19, 2009
Dear Lee Employee:
There’s good news today about Lee’s financial health. Lee has completed comprehensive changes to all of our debt obligations.
These changes will help us weather the recession. They also alleviate concerns among some investors that Lee would not be able to handle our debt during the combination of a severe economic downturn and an extremely tight credit market. Our ability to do so underscores the long-term strength of our company.
Today, we repaid $120 million of the principal amount of our $306 million Pulitzer Notes debt and refinanced the balance over the next three years. We also have amended the credit terms for our $1.1 billion of bank debt to provide a revised repayment schedule. In addition, we have redeemed the remaining 5 percent share of the St. Louis Post-Dispatch from the minority partner. I am attaching a news release with details.
Although significant economic challenges continue, our focus has been riveted on protecting our ability to grow in the long term. Even in this horrible economy, we remain, by far, the leading provider of local news, information and advertising in our markets. Our strength in print continues to be vast and stable, and our online reach continues to grow.
While revenue has decreased because of the recession, Lee continues to be an industry leader in advertising revenue performance. Lee has outperformed the industry average every quarter since 2003, and Lee’s advantage over the last two years has averaged nearly 5 percentage points per quarter. In 2009, we have ramped up our efforts to provide even greater value and effectiveness for advertisers. We believe our vigorous sales programs will help us further increase our lion’s share of local advertising spending, which should pay off even more when the recession ends. Meanwhile, as you well know, we have had to implement many cost reductions, some of which have impacted you directly.
Thank you for your hard work, dedication, determination and good spirits. I appreciate how you are staying the course with continued enthusiasm, creativity and absolute faith in our ability to assure our strong future.
Thank you again for all you’re doing to help our company remain strong during some of the worst economic conditions in our lifetimes.
With appreciation and best regards,
Mary Junck
The official release from Lee
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4 comments:
Alan Mutter of a Reflections of a Newsosaur has a pretty good analysis of what this new debt agreement means to Lee.
"In an example of how this works, the company now is obligated to pay only $22.1 million against the $1.1 billion in September, instead of the previous requirement to pay $54.9 million. At the same time, the company has agreed to pay higher interest rates on the loans, which will reduce the resources available for investing in the business or restoring its dividend, which was suspended as the company mustered all available cash to service its debt."
Here's another analysis from Seth Hettena.
"To put this number into context for you, if Lee sold off all its printing plants, buildings and equipment, and liquidated all its inventory to satisfy its creditors, it would still be $400m short."
"The arrangement means Lee will owe a lot more when the remainder of the loan needs to be repaid. At that time, Lee will owe $502.5 million, instead of the $83.1 million Lee would have owed then had it stuck to the original repayment plan."
http://www.google.com/hostednews/canadianpress/article/ALeqM5jHS0kK11FJYaRVRoJKGsa6gR8N0w
Wow! It only took them $20million to do this.
"Lee incurred about $20 million of financing costs from the actions described above, including professional and advisory fees. About half of these costs will be capitalized and amortized over the remaining life of the debt agreements until April 2012 with the remainder charged to expense in the March 2009 quarter."
http://www.bizjournals.com/stlouis/stories/2009/02/16/daily68.html
We'll see what happens at the March 10 shareholders' meeting. My guess is that institutional shareholders will see this action for what it is: Rearranging deck chairs on the Titanic. No matter how management tries the reverse stock split, the company's market cap still falls under NYSE requirements and it will be kicked off the exchange. A plan that dramatically increases debt costs and creates a insurmountable balloon payment in 2012 doesn't sound like much of a plan at all.
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