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 whats 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 Lazards 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 nations 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 Avistas 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 Tribunes 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 & Poors 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 Tribunes 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 isnt 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.
Its 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 dont understand. Its not been a happy experience for them, Im 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 thats 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 its called a loan-to-own strategy and theyve 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 dont have a prediction about when that model will stabilize, but I dont see that anyone has figured it out yet.
Garde la Foi, mes amis! Nous nous sommes les sauveurs de la République! Maintenant et Toujours!
(Keep the Faith, my friends! We are the saviors of the Republic! Now and Forever!)
LonePalm, le Républicain du verre cassé (The Broken Glass Republican)
ping
http://www.finance-commerce.com/article.cfm/2008/07/23/Star-Tribune-land-status-uncertain
Star Tribune land status uncertain
http://www.finance-commerce.com/article.cfm/2008/07/23/Tracking-the-changes-at-the-Star-Tribune
Tracking the changes at the Star Tribune
http://www.cjr.org/parting_thoughts/parting_thoughts_jim_spencer.php?page=all
Parting Thoughts: Jim Spencer
I still want journalism. Journalism just doesnt seem to want me.
By Jim Spencer Tue 22 Jul 2008 12:38 PM
why would any investor want to buy that debt package?...does the paper own significant real estate, TV stations, radio stations ect?....anything that could be cannibalized for cash?....if it’s just a newspaper then they’re screwed.
WELCOME TO FREE REPUBLIC’S MINNESOTA PING LIST!
99 MEMBERS AND GROWING...!
FREEPMAIL ME IF YOU WANT ON OR OFF THIS LIST!
Hey abb, check Google news - the NYTimes released their quarterly profits and it wasn’t good.
http://www.npr.org/templates/story/story.php?storyId=92823587
‘Marketplace’ Report: Trouble In Journalism
http://www.npr.org/templates/story/story.php?storyId=92823594
Pulitzer-Prize Winning Reporter Quits Journalism
http://gannettblog.blogspot.com/2008/07/detroit-gets-only-115-volunteers-for.html
Detroit: Only 116 volunteers for 150 buyouts
http://www.medialifemagazine.com/artman2/publish/Sports_TV_52/NBC_s_big_struggle_Those_last_TV_ads.asp
NBC’s big struggle: Those last TV ads
Buyers say network will still have unsold inventory
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003830568
In Wake of Profits Plunge: NYT Co. Looks to Control Costs
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003830858
Journal Register Co. Expected To Default On Loan — As Shares Drop Below A Dime
http://www.broadcastingcable.com/article/CA6581088.html?desc=topstory
LEFT COAST BIAS: Don’t Kill Nightline
Yes, LdSentinel had posted that earlier. The DeathWatch crew misses nothing...
http://www.freerepublic.com/focus/f-news/2049966/posts
Profit Plunge at the New York Times (DOWN 82%!)
FOX Business ^ | 7/23/08
Posted on Wednesday, July 23, 2008 10:16:25 AM by LdSentinal
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003830568
In Wake of Profits Plunge: NYT Co. Looks to Control Costs
Thanks, the NYTimes is the dragon that must be slain. The Minneapolis Star Tribune is small fry. :0)
Hopefully, more liberal controlled and owned so called financial groups will waste more of their capitol in these terminally ill fishwraps.
That way, they will have less money to doate to Obama, the DNC and other rat politicians.
In keeping with my ongoing study of the history of information distribution systems, I started this one last weekend.
http://www.amazon.com/Pillars-Post-Making-Empire-Washington/dp/0393013138
The Pillars of the Post: The Making of a News Empire in Washington (Hardcover)
by Howard Bray (Author)
I wish a conservative alternative would start-up. The competition would be the last little shove they need off the cliff.
The Strib and the slightly less liberal Pioneer Press have had a stranglehold on thought in the Twin Cities for decades.
I think you've hit upon the financial mirror to Rush's Operation Chaos. I love it.
http://www.chicagotribune.com/business/chi-wed-unity-journalism-diversijul23,0,6285055.story
Some journalists gather in hope
In a time when many media organizations are slashing staffs and downsizing their publications, the Unity convention in Chicago gives minorities a chance to talk
By Susan Chandler
Chicago Tribune reporter
July 23, 2008
As 5,000 journalists of color arrive in Chicago for a quadrennial convention, the state of newsroom diversity is at the top of the agenda as usual. This year, however, the urgency is far greater.
The already thin ranks of minority journalists are being culled by layoffs and employee buyouts as news operations around the country shrink to accommodate a drop in advertising revenue. The fear is that minorities will bear a disproportionate share of the ongoing job losses because they are more heavily represented among the recently hired.
That would be a worrisome development to Karen Lincoln Michel, president of Unity, an alliance of professional groups representing black, Hispanic, Asian and Native American journalists.
snip
Whale Turd Bonds?
I will be very glad to see these arrogant leftist b@st@rds sent to their financial grave. Good riddance to bad trash.
Garde la Foi, mes amis! Nous nous sommes les sauveurs de la République! Maintenant et Toujours!
(Keep the Faith, my friends! We are the saviors of the Republic! Now and Forever!)
LonePalm, le Républicain du verre cassé (The Broken Glass Republican)
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.