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Daily Star parent declares loss, still hasn't headed off bankruptcy

Lee Enterprises, the troubled publisher of the Arizona Daily Star and more than 40 other newspapers around the country, declared a 4th-quarter loss, even as the company struggles to refinance its crushing debt.

The company has said it will declare Chapter 11 bankruptcy if it doesn't push back the due date on the remainder of its debt.

The Iowa-based 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.

Lee has yet to complete the refinancing of the company's billion-dollar debt, and the company is still faced with the delisting of its shares from the New York Stock Exchange.

While Lee convinced creditors in September 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, it has yet to refinance $175 million in debt, known as the Pulitzer Notes.

Both the refinanced debt and the notes had been due in April 2012.

"We continue to work toward the refinancing of our April 2012 debt maturities, which we announced in September," said Carl Schmidt, Lee's vice president and chief financial officer.

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Lee met a deadline Monday to maintain its ability to file for Chapter 11 bankruptcy, should it be unable to repackage the remaining debt.

Lee took on the huge debt load when it purchased the Pulitzer newspaper chain, which brought it the Star and the St. Louis Post-Dispatch, among others.

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.

When it announced the repackaging of part of its debt in September, Lee said it would declare bankruptcy if the repayment of the remainder 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," Schmidt said in September.

The deal also requires the issuance of 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.

Even if it manages to roll over the remainder of its debt, 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 delisting from the stock exchange.

The chain, $1.1 billion in debt, has a market capitalization of just over $30 million.

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.

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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 has dropped by 70 percent in the last few months, and is now trading in the 60-cent range. Lee faces being removed from the New York Stock Exchange if it continues to be valued at under $1 per share.

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.

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1 comment on this story

Nov 15, 2011, 3:15 pm
-0 +0

Even though digital ad sales rose 23 percent, the company’s operating revenue fell 3.3 percent to $182 million.

How is this even possible?

If everything in this story is true (and I have no doubt that it is), there’s no way they can recover. They’re done. The sooner they accept it, the better off all involved parties will be.

But, once they finally close their doors, they won’t take responsibility for killing their own business…they’ll just blame the internet.

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