then it'll have to be deeper/less than the value of the buildings and presses to be worthwhile so you could at least sell off the assets when it goes under since the value of the paper will continue to decline
Posted on 07/23/2008 12:27:38 PM PDT by abb
The lenders who financed Avista Capital Partners’ 2007 acquisition of the Star Tribune now want out of the deal, and are seeking a buyer for their debt package, originally worth more than $400 million.
Credit Suisse and Royal Bank of Scotland have hired Lazard Ltd., a Wall Street financial adviser, to put the debt package on the market. Two local executives, both of whom spoke on condition of anonymity, said local business leaders have been approached with offers to purchase the debt.
Neither the banks nor their representatives would confirm that there is an effort to sell the debt.
But in a conversation about strategic planning under way at the newspaper and in its owners’ offices, Star Tribune spokesman Ben Taylor confirmed that the lenders have hired a financial adviser.
“The lenders and Avista are in a restructuring process,” Taylor said. “The lenders have hired their firm. … Everybody who has a stake in this is negotiating, and what’s going on at the table we have really no exposure to here” at the newspaper.
But observers said the effort by lenders to sell their debt could shift the strategic landscape for the highly leveraged Star Tribune. In the first place, it could be a sign that those lenders no longer believe the Star Tribune will be profitable enough to service their debt, despite all the cuts that have taken place at the newspaper in recent months.
Investors seem to share those doubts, bidding only 53 cents on the dollar this month for shares of the senior portions of that debt.
Observers also said that despite Lazard’s attempt to find a buyer locally, the likeliest candidates to buy the debt are distressed-debt hedge funds, whose traditional focus on returns could trigger demands for even faster cost-cutting at the newspaper.
Newspaper profits decline, despite cost-cutting
The Star Tribune, long among the nation’s largest newspapers, was purchased from the Cowles family by the McClatchy media company in 1998. Sacramento-based McClatchy paid $1.2 billion, according to reports published at the time.
In the years since, however, the rapid growth of the Internet has lured away much of the advertising that once made general-circulation newspapers so profitable. In early 2007, Avista, a New York-based private equity group, purchased the newspaper for less than half of what McClatchy paid only eight years earlier. Avista said at the time that it would contribute $100 million in equity, and it borrowed an additional $436 million in senior and junior debt, to buy the newspaper.
Avista later added $50 million in revolving credit, boosting its debt ratio to 91 percent.
The Star Tribune has been cutting costs in recent months; since Avista’s purchase, the newsroom has lost more than 80 reporters, editors, photographers and designers through two rounds of buyouts and the elimination of open positions.
Despite that, the Star Tribune’s long-term business slump has continued, with revenue declining by about 25 percent, from $400 million in 2000 to $300 million last year, according to a Star Tribune story in July. Sunday and weekday circulation has also dropped precipitously during the period.
Several weeks ago, Avista announced that it was writing down the value of its $100 million equity investment in the Star Tribune to $25 million. The company also called in the Blackstone Group as advisers in a restructuring.
Early this month, the Star Tribune said it had withheld a quarterly interest payment to the holders of second-tier debt, amid rumors that the newspaper might declare bankruptcy. But Chris Harte, chief executive of the Star Tribune, denied the bankruptcy speculation, saying the company simply decided it was wiser to withhold payment while completing a debt-restructuring plan with its senior creditors.
Meanwhile, investors have been voting with their pocketbooks on the true worth of the Star Tribune. According to Standard & Poor’s Leveraged Commentary and Data, investors have been paying only 53 cents on the dollar this month to buy pieces of the first lien loan to Avista, That figure is dramatically below the index for leveraged corporate debt, which is currently hovering at just more than 90 cents on the dollar – a figure that is itself very low by historic standards.
The value of the second lien and revolving portions of the Star Tribune’s debt have fallen even further, with bids coming in at seven to 10 cents for a dollar of second-lien debt, and 40 cents on the dollar for the revolving credit.
Avista isn’t the only media buyer to face unhappy prospects. The long-term migration of ad dollars and readers to new media has led to a fundamental uncertainty about the survival of general-circulation newspapers – an uncertainty enhanced by the economic downturn and the nationwide credit freeze.
In June, a Fitch Ratings report on corporate defaults warned that big debt obligations incurred by buyers could “become a financial albatross if conditions, and earnings, suffer.”
“It’s a new ballgame,” said Edward Atorino, a media analyst with the Benchmark Co. in New York. “Newspapers have never been in this situation.”
Avista – which owned no other newspapers when it bought the Star Tribune – has also been hampered by its inexperience, according to John Morton, a newspaper industry analyst with Silver Spring, Md.-based Morton Research.
“They (Avista) bought into a business they don’t understand. It’s not been a happy experience for them, I’m sure,” Morton said.
As the industry searches for capital that could help it reinvent itself for this new era, few traditional newspaper investors are showing up.
Instead the prime candidates for buying into debt-ridden newspapers now are hedge funds, especially those that make a specialty of distressed debt investments, according to several industry observers.
And that’s not good news for Avista or the Star Tribune newspaper franchise.
Those funds frequently buy a substantial debt stake in a distressed company, with the condition that they can convert that to equity if the borrower continues to miss the loan terms, said Mark Sheffert, chief executive at Manchester Companies in Minneapolis and a specialist in restructuring ailing companies.
“That means they frequently end up owning the company – it’s called a loan-to-own strategy – and they’ve been able to acquire it at a deeply discounted price,” Sheffert said.
Those investors have frequently been motivated to recover their investment and gain returns quickly, rather than provide the long-term investment that would be needed to reform and rejuvenate an industry.
Looking for a local buyer
Other candidates might still emerge on the debt-buyer list of those potentially interested in the Star Tribune. Sheffert said that strategic media buyers with an interest in expanding or entering the business may be attracted by the discounted debt prices, and the opportunities those provide.
Bidders whose interest is fueled by the desire to see a hometown institution revive might also appear, the two local executives said.
“It would make sense to contact someone whose roots and reputation are within the community,” one of them said.
But if a newspaper-loving investor is waiting in the wings, he or she will have some daunting financial realities to confront before writing a check, according to Jay Cowles, former chair of Cowles Media Co., which owned the Star Tribune until 1998.
“The newspaper business model is under severe stress, and until that model is stabilized there remains significant uncertainty about the future of newspapers,” Cowles said. “I don’t have a prediction about when that model will stabilize, but I don’t see that anyone has figured it out yet.”
That’s the beauty part when libs flop——lib pols get less money.
then it'll have to be deeper/less than the value of the buildings and presses to be worthwhile so you could at least sell off the assets when it goes under since the value of the paper will continue to decline
Aren't they all allegiance-pledging members of the Liberal Journalists Alliance?
Me loves it too!!! Giddy up Grampa Dave!!! NOBTHEBAILER ain't the only one...
http://www.startribune.com/business/25834489.html?location_refer=Homepage:latestNews:4
Star Tribune newsroom labor deal ratified
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.