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Posted Sep 9, 2011, 10:27 am
Lee Enterprises, the troubled parent company of the Arizona Daily Star and other newspapers around the country, refinanced a significant proportion of its crushing debt Thursday.
The move, which came after Lee stock hit a 52-week low on Tuesday, may head off a threatened bankruptcy.
The newspaper chain convinced creditors to extend the due dates on about $864 million in loans to 2015 and 2017 by agreeing to pay interest rates of up to 15 percent.
The company had been facing an April 2012 deadline to repay the funds.
Still to be refinanced is $175 million in debt, known as the Pulitzer Notes, also due in April 2012.
Tuesday, Lee stock fell to just 59 cents, a 52-week low. Friday, after the refinancing was announced, the stock hit 68 cents in midday trading.
"(The deal) will allow us to refinance our bank debt on good terms and keep Lee on solid financial footing as we continue to expand our digital platforms, build audiences, drive revenue performance and improve our balance sheet," Lee CEO Mary Junck said in a press release.
But Lee's challenges are not over.
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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 delisting from the stock exchange.
The chain, $1.1 billion in debt, has a market capitalization of just over $30 million.
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."
Because the stock has been valued under a dollar for an extended period, the New York Stock Exchange warned Lee in July that it faces delisting if the price does not increase.
The refinancing is contingent on a successful deal on the Pulitzer Notes. The company said it will declare bankruptcy if the repayment of that debt isn't pushed back as well.
"Getting the support of more than 90 percent of our creditors is a significant milestone and allows us to turn our attention to refinancing the Pulitzer Notes. Assuming successful completion of that financing, we expect to implement the transactions out of court if we can get lender support up to 95 percent. Otherwise we will seek to implement the transactions through a favorable prepackaged Chapter 11 filing," said Carl Schmidt, Lee's chief financial officer.
The deal also requires the issuance of new shares in the company, 6,744,000 in commmon 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 deal has two parts:
A first lien consisting of a term loan of $689.5 million, along with a $40 million revolving credit line. The loan carries an interest rate of LIBOR plus 6.25 percent, and is due in December 2015.
The second lien consists of a $175 million loan, due in April 2017. The interest rate is 15 percent. The creditors for the second loan will be issued the new stock shares.
Both loans are contingent on the remaining $175 million also being refinanced.
Lee also publishes 40-some other newspapers, including the St. Louis Post-Dispatch, Quad-City Times and other Midwestern papers.
Profits from the Daily Star's South Park operation are shared between Lee and the former publisher of the Tucson Citizen, Gannett Inc. Gannett publishes, among others, USA Today and the Arizona Republic.
Lee has been widely thought to be on the verge of bankruptcy. The decline in newspaper circulation in recent years, and the company's crushing $1.1 billion debt from its purchase of the Pulitzer chain (which brought it the Star), have pushed Lee to cut costs.
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.
Lee stock has dropped by 70 percent in the last few months, and is now under a dollar.
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 December, 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 that it may be delisted if the stock does not climb above the $1 threshold.
In 2004, Lee stock sold for $49.