Publisher Lee Enterprises to refinance $1B in debt

AP News
Posted: Apr 11, 2011 11:05 PM
Publisher Lee Enterprises to refinance $1B in debt

Lee Enterprises Inc., the publisher of the St. Louis Post-Dispatch and more than 40 other daily newspapers, plans to refinance about $1 billion in debt that was due next year. The move will give the company breathing room as the economy recovers and Lee works to increase revenue from digital media.

Under the strategy outlined Monday, Lee hopes to raise $1.05 billion from the sale of notes due in 2017 and 2018. The money would be used to retire nearly all of its existing debt due in April 2012.

Uncertainty about whether Lee would be able to repay the debt due next year had raised fears that the company might have to seek bankruptcy protection, a path that other U.S. newspaper companies already have followed since 2008.

"If Lee gets this deal completed, it would certainly bring them back from the brink," said newspaper analyst Mike Simonton of Fitch Ratings.

The company, based in Davenport, Iowa, didn't specify the interest rate it will pay on the senior secured notes. Those details will be worked out as part of the debt offering. Lee announced its refinancing plans in a statement on Monday.

Investors liked the move. Lee shares gained 15 cents, or 5 percent, to close at $3.12 Monday.

Like most other newspaper publishers, Lee's revenue has fallen steadily over the past four years. The economy weakened, and newspapers' main source of revenue _ print advertising _ declined as advertisers shifted to less expensive alternatives on the Internet. Lee's revenue in its last fiscal year, which ended in September, totaled $781 million, down 30 percent from $1.1 billion in 2007.

While the erosion has hurt most newspaper publishers, it has caused the biggest problems for those with heavy debt. Lee fell into that category after tapping lenders to help finance its $1.46 billion acquisition of newspaper publisher Pulitzer Inc. in 2005. That deal included the St. Louis Post-Dispatch, now the largest of Lee's newspapers.

Although Lee is profitable _ it had net income of $46 million in fiscal 2010 _ Simonton said the company has been financially distressed since 2008.

Lee's vulnerability attracted the interest of hedge funds that specialize in buying the debt of troubled companies at sharp discounts. Some of these "vulture" investors have become owners of other newspaper companies that sought to purge their debt in bankruptcy. The companies under the control of lenders include MediaNews Group, Freedom Communications and the Journal Register Co. The Tribune Co., publisher of the Chicago Tribune and Los Angeles Times, also will be turned over to a group of lenders that includes hedge funds if its proposed bankruptcy reorganization gains court approval.

Other companies, such as McClatchy Co., which owns The Miami Herald and The Sacramento Bee, have been able to retain their independence by pushing off debt repayments through refinancing.

The advertising outlook for newspapers' print editions still looks bleak after five consecutive years of deterioration. Print advertising in U.S. newspapers totaled $22.8 billion last year, a 52 percent drop from $47.4 billion in 2005, according to the Newspaper Association of America. The research firm eMarketer Inc. expects newspapers to continue to lose print advertising in each of the next five years, although at a slower rate. It projects newspapers' print ad revenue will be down to $19.8 billion in 2015. Internet advertising is supposed to grow from $25.8 billion last year to $44.5 billion in 2015, according to eMarketer.

Lee and other newspaper publishers are trying to sell more Internet ads and develop applications for smartphones and computer tablets such as Apple Inc.'s iPad in an effort to revive their growth. Those efforts still haven't been enough to replace the revenue lost in newspapers' print editions, which charge substantially higher rates for ads than websites.

In its last fiscal year, Lee increased its digital ad revenue by 12 percent, to $47 million from $42 million. But its ad revenue from print and other sources fell by $60 million, or 10 percent, from the previous year.

Lee said Monday that total revenue in its last fiscal quarter ended March 27 will be down 3.5 percent to 4 percent from the same time last year. It didn't forecast its earnings for the period.

Analysts consider Lee to be in a better position than some of its industry peers because its newspapers generally are in markets that weren't hit as hard by the Great Recession. In addition, most of Lee's newspapers are small to medium-sized with circulation below 100,000, generally exposing them to less intense competition than larger dailies, according to an analysis by Moody's Investors Service.

Besides St. Louis, other key markets for Lee include: Tucson, Ariz.; Madison, Wis.; Lincoln, Neb.; Billings, Mont.; Davenport, Iowa; and Bloomington, Ill.