Last month, I wrote about the financial travails of Dallas-based American Community Newspapers, which publishes 44 Minnesota community papers, most under the “Sun” banner. In just a year, the company’s stock had fallen from $5.63 a share to 16 cents, and company officials acknowledged its Minnesota papers were the biggest losers, compared with clusters in Texas, Ohio, and suburban Washington, D.C.

In a Securities and Exchange filing today, ACN acknowledged things are getting worse. Among other revelations:

•  The highly leveraged company (as of last month, $136 million in debt remained on a $165 million 2007 purchase) has now violated credit agreements. “ACN is exploring [restructuring] alternatives,” a company release notes, “but there can be no assurance that ACN will be able to obtain waivers or other relief.”

•  Owners have written off nearly $70 million in “goodwill” — shareholders’ equity from a company worth $165 million 13 months ago. That might not be the end of it: ACN’s release discloses a “reasonable possibility” of a bigger write-down, depending on lender negotiations ad local ad climates. With the company’s market value a mere $2 million, it’s easy to forecast a bigger “impairment.”

• ACN’s revenue slide is accelerating; spring-quarter sales were down 14.4 percent from a year ago. The company says Minnesota’s decline is worse, but does not break out a figure.

What's next?
So what will happen to a community news source serving 457,000 readers in many metro suburbs and cities such as Champlin, Delano and Monticello?

Obviously, ACN doesn’t want to sell or close papers, but those are obvious options if lenders prove insufficiently flexible (and prospective buyers can navigate a credit crunch).

The papers have never been lavishly staffed — there was some shrinkage earlier this year — but more cuts would surprise no one. Last month, ACN's local publisher, Bob Cole, said he was on budget and planned to add two online positions. Online revenues grew 17.2 percent from a year ago, but still only constitute about 3 percent of total revenues.

Company officials were not immediately available to discuss the options, but I’ll update this item if they call back.

The release does claim second-quarter numbers might look worse because ACN outperformed the newspaper industry in the 2007 comparison period. Still, the credit default and asset write-down are undeniable.

Troubling loan figures
If you’re into journalism financials, ACN’s new "8K" SEC filing contains revealing nuggets.

Media companies that borrowed big betting on endless growth now increasingly default on their credit deals. When sales and profits fall, what often trips them up is the mandated “debt leverage ratio” – the amount owed, compared with earnings (before interest, taxes, depreciation and amortization).

Lenders stipulate if the ratio rises too high — in other words, profits don't keep up with debt levels — they can foreclose.

ACN’s debt leverage on its main $108.5 million credit line was supposed to be below 6.5 to 1 — in other words, debt couldn’t be more than six and a half times annual earnings. As of June 29, the ratio was 7.33 to 1 — too much debt, compared with falling profits.

On a $143 million subordinate credit line (whose creditors are paid after the main line) has an 8:1 debt ratio limit, but instead stands at 9.68:1.

So barring very understanding lenders, ACN will need to generate some big operating profits to get right with its borrowing, and that seems fantastical at the moment. (Second-quarter net income was a mere $200,000.)

Short of foreclosure, ACN’s lenders can raise their interest rate 2 percentage points, the company’s SEC filing acknowledges. Not a great spot for investors or employees to be in.