Major US newspaper groups continue to struggle, but in the case of the bumbling New York Times, it’s starting to look desperate.
The New York Times Company said overnight it raised $US225 million by doing a sale and leaseback with the 58% of its New York HQ it owns (the rest is owned by a New York property group).
It said the lease term is 15 years and the Times has an option to repurchase its share of the building for $US250 million after 10 years. But in the meantime it will pay rent starting at $US24 million, rising over later years.
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Assuming no increase in rent, the minimum the building will cost the company is $US490 million by 2019, if it exercises the 10-year repurchase option. That also assumes the company will be around in 10 years, something that can’t be guaranteed in the present business climate.
That $US24 million a year is equal to interest of 10.6%. That’s expensive, but so is cash at the moment, especially when bankers and investors want their money back.
However, it’s a steal compared to the $US250 million invested in the company from Mexican billionaire, Carlos Slim. His preference shares carry an interest rate of 14%, or $35 million a year.
So to raise a total of $US475 million to pay down debt, the Times will have to find an additional $US59 million a year. The company hasn’t said how much interest it will be saving (or how much more it will be paying) by cutting its debt burden.
Now there is tax benefits from the interest and rent payments, but they are only handy if the company earnings a profit: something that’s a bit up in the air right now.
The newspaper said in the statement that it had more than $US1 billion of debt at the end of 2008 but that figure has been reduced using Slim’s loan.
The Times said it still faces a principal payment on long-term borrowing of $US49.5 million US dollars due in November and a payment of $US250 million due in a year’s time. It signalled overnight that this debt of $US250 million worth of notes, will be redeemed next March. The proceeds of the sale and leaseback will help fund the redemption of the 4.5% notes.
So to get the money to redeem notes costing $US11.25 million a year, the company has been forced to do the sale and leaseback which will cost it more than twice that amount, or $US24 million.
New York investment analysts say the Times lifted dividend payments 31% in 2007, which rewarded the controlling family shareholdings, but this was happening as the company’s revenues were starting to slide as the credit crunch appeared and the economy and advertising fell.
No doubt the sale of the long-time headquarters in the city in 2007, to Tishman Speyer Properties for $US175 million, helped spark the then feelings of wealth.
How then did the Times Company fee when Tishman later sold the building for $US525 million? Very foolish, I say.
In contrast, the latest attempt by the struggling McClatchy publishing group to stay alive was mild: just the third round of staff cuts in a year with news that another 1600 workers are going to walk the plank.
This is after cuts last year dropped the company’s work force by a third, from 16,800 to 11,500. Now a further 15% of the staff are going at a cost of $US30 million at least.
The losses will happen across the board and at most papers and parts of the business. McClatchy owns papers including The Miami Herald, Sacramento Bee and Anchorage Daily News.
Meanwhile there are reports that the Hearst newspaper group has started hiring staff of the Seattle Post Intelligencer for an online edition ahead of a decision on the paper’s future in the next week. Hearst has said that if it can’t sell the paper by the end of this week it will look at closing it and running an online edition. Hearst has made the same announcement for the San Francisco Chronicle.
The job cuts will be achieved through severance programs, attrition and further consolidations and outsourcing of some business functions.
As dramatic as the situation is at the NYT, the state of McClatchy’s finances are even more fraught. It, like the Times, has eliminated dividends to shareholders, but its cost cuts and staff reductions have been much more dramatic and faster as the slump in ad spending and circulation revenues hurts.