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Updated Dec 3, 2011, 11:02 am
Lee Enterprises, the troubled parent company of the Arizona Daily Star, announced Friday that it will file a "prepackaged" bankruptcy as it struggles to push back paying off its $1 billion debt.
The company is declaring Chapter 11 bankruptcy after a minority of lenders refused to extend their loan terms.
While the majority of Lee's debt holders agreed to push back the due date on the loans 2 years, about 6 percent of the company's lenders were "non-consenting," Lee said in a press release. The bankruptcy move can force those creditors to accept the plan, as long as the majority of lenders agree.
Lee said its 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. That company just announced that it will again furlough employees to cut expenses.
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 about 40 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.
A filing is expected around Dec. 12, the company said, with Lee's CEO calling it "welcome news for all who have a stake in Lee" in a press release.
Last month, 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.
Even as Lee has yet to 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 the stock price has fallen so low.
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 had yet to refinance the $138 million Pulitzer Notes.
Both the refinanced debt and the notes had been due in April 2012. Lee's plan would extend 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.
The company will ask the bankruptcy court to enforce the deal extending its loans.
Calling it a "a key agreement necessary to proceed with a comprehensive refinancing of its debt," Lee spun the bankruptcy filing as a plus. "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.
"Although the refinancing will require Lee to pay higher interest rates, it and our strong cash flow will keep Lee on solid financial footing as we continue reshaping our company for long-term growth by expanding our digital platforms, building audiences, driving sales and improving our balance sheet," said Mary Junck, Lee's CEO, in the release.
Lee said bankruptcy will have no impact on its operations, with its newspapers continuing to publish. Employees, vendors, and customers will not be affected, Junck said.
The company's CTO said Lee expects to complete the restructuring process in 60 days or less.
The bankruptcy filing was announced after stock markets closed Friday. In after-hours trading, the stock jumped 12 cents to 65 cents, a 22.6 percent increase.
Lee still troubled
Even if it manages to roll over its debt with the filing, 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 $27 million, down from $30 million just last month.
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 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.