Star Tribune reorganization plan: the hard (and soft) numbers
Some facts gleaned from the Strib's last filing on how it will exit bankruptcy this fall:
The value
The company estimates the Strib will be worth $118 million to $144 million when it exits bankruptcy this fall. The paper would carry $100 million in debt — a substantial reduction from the $480 million it now owes, but isn't paying.
That means the Strib's equity value (worth minus debt) is $18 million to $44 million. A big come-down for a paper that sold for over $1 billion 11 years ago.
The net worth almost precisely matches the value of the Strib's real estate, plant and equipment, which is estimated at between $17.5 million and $36 million if the paper was liquidated.
Just two summers ago, the Vikings were on the verge of paying the Strib $45 million for four downtown blocks that didn't include the Strib's main headquarters or the massive North Loop printing plant.
The Strib's restructuring consultant, Blackstone, estimates the Strib would only reap 12 to 25 percent of these assets' book value, though there may be some incentive to lower the liquidation value to make restructuring look better.
The creditors
First lien creditors, owed $384 million, will get back 30 to 36 cents on the dollar. For newer debt-holders who bought the Strib's debt at distressed levels, this could represent a net gain. Of course, that worth is dependent upon the paper actually being able to pay off that $100 million loan — a substantial if.
The company estimates the creditors would've only received 12 to 22 cents on the dollar if the paper was liquidated. That means the place is worth more as a going concern. A big relief to all of us non-creditors!
Secondary creditors, owed $96 million, will get between 0.5 and 1.3 cents on the dollar. Moral of the story: Don't be an unsecured creditor to a newspaper.
As the Strib's story noted this morning, the equity owners (Avista Capital Partners and publisher Chris Harte) get zippo. But they knew that long ago; Avista wrote off its $100 million stake months earlier.
The business
The Strib claims 65 percent of the region's readership, with a website averaging 83 million page views per month over the past six months. The latter is a 60 percent jump from last year.
However, the web only accounted for 7.1 percent of the company's total 2008 revenue, which works out to $17.5 million from online. (There's no breakout for this year.)
Meanwhile, total revenue fell $58 million in the same period — another vivid illustration of how online gains don't make up print losses. The Strib, a $397 million operation in 2000, is on track to be under $200 million this year, based on monthly reports filed with the court.
Circulation revenue fell from $65 million in 2005 (pre-Avista) to $55 million in 2007 to $48 million last year.
In 2008, the Strib missed $20 million in loan payments, which led to the bankruptcy. Under the new plan, the Strib will pay at least $8 million a year, or $2 million per quarter. (Details below.)
Under Avista, the Strib shed 384 jobs in 2007 and 232 in 2008. It had 1,341 full-time-equivalent positions when it filed for bankruptcy in mid-January, and has gotten rid of 59 more positions so far in 2009.
The new debt
The new owners — for now, the first-lien creditors who will want to quickly sell their stake — wind up holding hold $100 million in debt. The interest rate will be the so-called LIBOR interbank borrowing rate + 3 percent (with a LIBOR floor of 5 percent).
So it looks like the "new" Strib will have at least an 8 percent mortgage, plus whatever payments it must make on the principal.
The pension plan
The Strib will end contributions to unions' pension plans, and has pushed some into the company-owned plan. However, that plan currently underfunded to the tune of $27.4 million. Unless the economy rebounds, the new owners could kick in up to $11.6 million between 2010 and 2015.
Financial wonk extra credit
Blackstone says it used two methods to come up with the $118 million to $144 million valuation:
First, it projected the Strib's finances by comparing trends at other publishers, including "EW Scripps Co., Gannett Co. Inc., Journal Communications Inc., Lee Enterprises, McClatchy Co., Media General, The New York Times Company and Washington Post Co." Those are all bigger operations, and some are much more diversified, but all of their newspaper operations are troubled.
Second, Blackstone did a "discounted cash flow analysis," looking at projected monies the downsized, reorganized operation would throw off between September '09 and December 2012. For you financial wonks, Blackstone valued the paper at 4.5 to 5.5 times EDITDA (earnings before interest, taxes, depreciation and amortization). In the high-flying days, creditors would finance deals at 9 times EBITDA, which proved epically stupid.
I'd love to hear from finance geeks whether Blackstone's lower range is realistic.
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Comments (4)
"The new owners — for now, the first-lien creditors who will want to quickly sell their stake — wind up ... "
Hey David, let's make a deal: I'll keep rounding up candidates for the Timberwolves coaching job while you identify suspects who will be taking the Strib off the hands of those first-lien creditors. Who might be wading in?
In my view, the EBITDA multiple is reasonable, perhaps even generous -- especially in light of the fact that the Strib has been totally incapable of identifying new sources of revenue, an amazing feat given the popularity of its web site and an evident brain cramp when it comes to monetizing that usage. (Hint: Micropayments for full story views; higher payments for formatted story views; reasonable reprint fees and services. See eBay, Amazon business models.)
Other reasons for the low multiple:
-- Uncertainty EVERYWHERE. Fabulously underfunded pension plan, with a totally schizophrenic equity market and an equally distorted fixed income market, making any sort of discount rate projections relative to future liabilities essentially a roll of the dice.
-- Still no clear visibility on an economic recovery, which leads to stronger consumer spending, higher asset valuations (i.e. classifieds) and higher advertising revenue. Witness BBY stock, at $34 a share, 11 times forward earnings, less than a "1" PEG ratio -- cheap, cheap, but who's willing to risk their investment reputation on a $2,200 flat screen purchase?
-- Not so great cash flow (duh). An eight percent mortgage, or put another way, 300 basis points over LIBOR with a five percent LIBOR floor. So you're telling me that they're already stratospherically above current market rates? One-year LIBOR is at 1.73 percent. Add 3 percentage points, and that results in a 4.73 percent interest rate if you were to use a REAL LIBOR-calibrated rate. Looking at six-month LIBOR rates, it's even worse. Six-month LIBOR, which matches the twice-yearly payments of many corporate bonds, is at 1.16 percent, suggesting a rate of 4.16 percent. So we're setting a "floor" on LIBOR that is (depending on the selected term -- one year or six-month) that is fully either 3.84 percentage points over the current six-month rate, or 3.27 percentage points over the one-year rate. Why even use LIBOR? In current market conditions, it's a meaningless calculation. Why not just write into the agreement: "The Star Tribune Company shall pay current debt-holders at a rate defined as 'through the nose.'"
Given the risk, maybe that's fair -- but spare us the LIBOR crap. That just gives the bondholders much, much higher upside, and absolutely no benefit to the business for better performance. Interest rates soar, the bondholders get higher payments. So even if the paper starts doing really well, in a higher inflationary environment, they're still penalized.
-- Other negatives: No resolution whatsoever on how to protect the paper's intellectual property (editorial content) from the aggregators, the mere existence of the truck drivers. . .outside-the-newsroom, Avista-promulgated, suffocating editorial policies that squelch aggressive reporting and strong editorial positions (lessening a value proposition for readers).
So who wants to pay up for that kind of hairball?
Best solution: Liquidatation (but it's too late for that); start again with a greenfield operation: leased trucks (tons of capacity there -- and yes, give the new drivers a GPS to negotiate all those extremely complicated delivery routes the Teamsters were braying about); no unions (and this, from a former union negotiator); keep the staff people who really want to be journalists, and hire some people (remember the concept: "cub reporter"?) willing to cover night city council meetings in Lakeville and Andover -- taking on the suburban pubs -- then figure out how to package it and make money on it (that nice web site, perhaps?). Oh, and also get rid of any editor who consistently comes to planning meetings without anything resembling a decent story idea; start covering your own bankruptcy story and doing the kind of investigative work, advocated -- admirably, I might say, by Nancy Barnes -- that bring people back to read the newspaper every day. Oh, and make your columnists actually express an opinion, especially on state and local politics, rather than write glorified feature stories and personality profiles. But that brings us back to our friends at Avista. Sell the presses; firesale the building and parking lot and rent some of the 25 percent or so vacant space in downtown Minneapolis. In other words, pull every available dollar out of the operation and reset the break-even point for the enterprise. In my view, bankruptcy may not, in the final analysis, solve that particular problem. I really, really hope I'm wrong.
All crazed ravings, and not the least bit realistic, but in my humble opinion that's why someone is only willing to value the business at five times EBITDA. By the way, I'm guessing that there's not much "D" or "A" -- depreciation or amortization -- both non-cash items -- left; so this is pretty much a hard cash on hard cash valuation, which is actually a positive and may have a positive impact on the low multiple.
Tony Carideo, CFA
Former reporter
Tony,
"Bring people back to read the newspaper every day."
More people seem to be reading the StarTribune than ever before between the print and digital editions. It is not a matter of content. It is a monetary issue.
My mother used to keep every StarTribune from big news events. I analyzed the edition announcing Nixon's resignation. With the exception of the number of columnists there were more local stories from this weekends newspaper than there was in the Nixon edition. I honestly do not see a huge amount of difference.
One cannot ignore what is happening to all media. I would be very interested in seeing what are the detailed financials and projections for MINNPOST. I do know the owners of this website have admitted that they are not going to reach profitability as soon as projected. Does this mean that MINNPOST is doomed?
One cannot look at the newspaper industry without acknowledging the severe financial hardship of all traditional media. My sister was laid off at a local clear channel radio station because of the same debt issues facing Avista. They are losing lots of money, and she expects them to be filing bankruptcy in the not too distant future in light of what is happening with the automobile industry. I have friends that work at local television news channels who do not think there will be tv news shows in the forseeable future do to advancements in technology. Why stay up late to get the Twins score when you can get it off your computer.
Broadcast and radio depend on automobile and real estate advertising. With real estate migrating to the internet, and the auto industry in free fall one must acknowledge that ALL media has an uncertain future. Even Huffington Post, YouTube and Facebook are losing money (with no change in sight) and they serve millions!
As a society I hope the StarTribune, PioneerPress, MinnPost, public radio and television etc. survive. We need as much information as possible not less for the sake of our democracy.
You have to admit their website is dominating the country (from Editor & Publisher). Pretty impressive numbers. They led in April too:
EXCLUSIVE: Average Time Spent on Top 30 Newspaper Web Sites Declines -- More Than Half Fall
By Jennifer Saba
Published: June 22, 2009 10:50 AM ET
NEW YORK The amount of time people spent at the top 30 newspaper Web sites is stuck in neutral if not reverse: More than half saw significant falloff in May.
The list is for May Nielsen Online data for the top 30 newspapers' Web sites ranked by unique users. Nielsen (owned by E&P's parent company) defines the average time spent per person at a site during the month.
Seventeen of the top 30 decline in time spent.
There were a few standouts on the list. The average time spent at The Star Tribune in Minneapolis jumped to more than 47 minutes in May 2009, compared with 27 minutes in May 2008. In April, the site claimed the most time spent out of the top 30 Web sites.
The San Francisco Chronicle and SFGate.com almost doubled the amount of time spent on site in May 2008 to 21 minutes from 12 minutes in the same month a year ago.
There are many reasons why the average time spent per person can vary including news events or even the number of visitors. A big spike in uniques -- more people attracted to the site -- could account for a lower time-spent average.