26 January 2010

More Denver Post Bankruptcy Details

More details about the Denver Post's holding company's bankruptcy are available at the 5280 blog:

The Seattle Times notes that the Bank of America, among other lenders, will enjoy an 88 percent stake in dozens of U.S. newspapers . . . [Dean] Singleton will receive a $634,000 salary and an annual bonus of up to $500,000 as [succesor publisher] Affiliated’s chief executive. He will also receive $360,000 annually under a separate agreement with The Denver Post Corp.

Those are pretty hefty salaries for a pair of apparently part-time jobs.

The Seattle Times goes on to (fairly and appropriately) berate the group of newspapers for its consolidation strategy, which homogenized newspapers making them less interesting. Of course, the investors who financed this strategy were ultimately empty handed as a result of the reorganization.

The 88% figure cited by the Seattle Times is a bit puzzling, however. Earlier accounts had appeared to state that Singleton and one of his senior executives will together have a 20% stake in the successor entity. Given the factual weaknesses of the Seattle Times' other criticism of the deal, I'm inclined not to give this figure much credit.

The Seattle Times also faults Affiliated for being bank controlled, arguing that this biases the papers the chain owns in favor of it bank owners and depriving it of independence. This analysis that doesn't really ring true. The reorganization leaves the banks without voting control of the resulting company, leaves them with less leverage as a result of their debt ownership since the burden this places on the publisher's cash flow is more manageable, and fails to recognize that most of these lenders will be required to unload their investments within five years.

As a result of the reorganization, Singleton has a free hand to manage his newspaper empire as he sees fit without input from outsider owners or creditors. If anything, the influence that banks have over the chain's editorial decision making is greatly reduced now that it does not have to engage in high stakes negotiations with them over the survival of the company. Now that he has their money, and his company has been forgiven the lion's share of the debts it owes to its lenders, the only reason he has to make a profit for them is his own substantial stake in the company which gives him an incentive to make the company profitable (to the extent that he can't divert those profits with tools like generous compensation for his services for himself).


Dave Barnes said...

My prediction was that Dinky Singleton would do the BK in July 2009.
My bad.
But, he did do it.

Every newspaper in the country with any substantial debt load has/will provide their shareholders and debtholders with a huge haircut.
Valuations are way down.
Cash flow is hurting and this is their chance.

Think about it.
How did Dinky suffer? Not much.
How much did Hearst suffer? About $300M USD.

Andrew Oh-Willeke said...

Debt is a problem, but the deeper problem is whether it is even possible to make an operating profit before debt service. How many newspapers have positive EBITA (earnings before interest, taxes and amortization, a multiplier of which is often used to value operating businesses)?

A Chapter 11 reorganization is just a slow road to a Chapter 7 liquidation unless your business model allows you to break even.

Can we really be that far from the point at which newspapers are non-profits that rely on charitable contributions from a subset of readers on top of users fees and underwriting by advertisers just to break even?