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Posted Jan 23, 2012, 6:56 pm
A federal judge gave the nod Monday to a plan that puts off the day of reckoning for newspaper chain Lee Enterprises, the publisher of the Arizona Daily Star, St. Louis Post-Dispatch and some 50 other newspapers.
Lee has been laboring under a $1 billion debt, much of which was to become due in April. A pre-packaged bankruptcy prepared by the chain pushes the due dates back to December 2015 and April 2017.
The company contends the Chapter 11 reorganization will give it time to right its finances.
"This is the favorable outcome we fully expected, and it provides Lee with a nearly four-year runway to continue improving our balance sheet," said Lee CEO Mary Junck in a press release.
The court approved the terms of the plan, which should be in place by Jan. 30.
The company reached terms with the majority of its debt holders last year, but had to go to court to force the terms on a minority of its lenders.
While the majority of Lee's debt holders agreed to push back the due date on the loans 2 years, about 3 percent of the company's lenders were non-consenting, Lee CFO Carl Schmidt said in the release.
Lee stock jumped 24 percent — 21 cents — to close at $1.10 on the news Monday.
Lee is headquartered in Iowa and incorporated in Delaware, where Monday's decision was handed down.
The company's interest in the Daily Star and the Madison, Wis., Capital Newspapers operation were not included in the bankruptcy. Both Tucson and Madison are partnerships with other newspaper companies.
Here, profits from the South Park operation are shared between Lee and Gannett Inc., the national newspaper chain that shut down the Tucson Citizen's press in 2009. Gannett publishes, among others, USA Today and the Arizona Republic.
Lee took on the huge debt load to finance the 2005 acquisition of the Pulitzer newspaper chain for $1.46 billion, which brought it the Star and the St. Louis Post-Dispatch, among others. Lee publishes nearly 50 daily newspapers across the country.
Part of Lee's debt, $138 million known as the Pulitzer Notes, was inherited with that purchase, and is secured by the assets of the former Pulitzer chain, including the Star.
Bankruptcy to force debt restructuring
Lee has said for months that if lenders did not agree to rewrite their loans, the company would file to force a restructuring of the debt.
Junck called the bankruptcy "welcome news for all who have a stake in Lee" in a December press release.
Monday, she called it an "achievement" in a letter to stockholders that repeatedly touted Lee's "intensive sales culture."
In November, the newspaper chain reported an $8.8 million loss—20 cent per share—for the quarter ending Sept. 25.
Even though digital ad sales rose 23 percent, the company's operating revenue fell 3.3 percent to $182 million.
While Lee may be about the complete the refinancing of the company's billion-dollar debt, the company is still faced with the delisting of its shares from the New York Stock Exchange because its stock price has fallen so low.
Both the refinanced debt and the notes had been due in April 2012. Lee's plan extends the maturity of about $730 million until Dec. 2015, with another $175 million loan becoming due in April 2017.
Lee will also issue new shares in the company, 6,744,000 in common stock. That's the equivalent of 13 percent of the current share pool; the issuance will dilute the value of current stockholders' interests in the company.
The company will pay 9.2 percent interest on the refinanced debt, up from 5.1 percent now.
The Pulitzer Notes will carry an interest rate of 10.55 percent, increasing by .75 percent annually. That debt will amount to $126.4 million after some is repaid.
Calling it a "a key agreement necessary to proceed with a comprehensive refinancing of its debt," Lee spun the bankruptcy filing as a plus last month. "Lee Enterprises prepares to complete refinancing," it headlined a corporate press release.
"Pulitzer Notes agreement enables implementation of debt restructuring through voluntary prepackaged Chapter 11 filing, preserving 87% of interests of stockholders and all interests of creditors and other business partners," the company said.
Lee still troubled
Even as it manages to roll over its debt with the bankruptcy aproval, Lee's challenges are not over.
The company will still carry an enormous debt load, and is being forced to water down its stock. Its financial position has been more dependent on cutting employees than increasing revenues. And Lee still faces the potential of being delisted from the stock exchange.
The chain, $1.1 billion in debt, has a market capitalization that has fluctuated wildly over the past year. It is now at $55 million, up from $27 million at the beginning of December.
In May, the company backed away from a plan to refinance the debt, which was to come due in April 2012, after investors failed to bite.
The company has been laying off hundreds of employees, including axing 52 at the Daily Star in July in what one affected employee called "a major bloodletting."
Lee stock dropped by 70 percent over a few months at the end of last year, and was trading in the 60-cent range. While Monday's stock spike puts it out of danger for the moment, Lee faces being removed from the New York Stock Exchange if it continues to be valued at under $1 per share through the company's March annual meeting.
In 2009, Lee was nearly delisted from the New York Stock Exchange because the stock sold for under a dollar for months. At one point it dropped as low as 28 cents.
If it continues to perform poorly through March, the stock may again face being removed from the trading desk, which would further shake investor confidence in Lee's ability to pay off its debts.
The company received a notice from NYSE on July 8, 2011, that it may be delisted if the stock does not climb above the $1 threshold.
In 2004, Lee stock sold for $49.
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