In the wake of today’s announcement that the Star Tribune has stopped paying its debt entirely, I thought I’d take a crack at a recently popular journalism parlor game: “What’s the Strib worth?”
The honest answer is “Who knows?” though the price is certainly well below the $530 million owners Avista Capital Partners agreed to pay in December 2006, or the $436 million it borrowed in February 2007.
But let’s try this: about $125 million.
That number’s hardly bulletproof, but it might be the most solid guess we can make.
The Strib is privately owned, so there’s no stock price. But the paper’s up to its eyeballs in debt — and that trades on the open market. This allows lenders to cash out (or hedge repayment risk) before a loan is paid off.
The Strib’s financing has two components: $340 million in “first-lien” debt — which gets paid back first — and $96 million of “second-lien” debt.
A market price of 100 means your loan sells dollar-for-dollar — in other words, you’re a solid risk.
Some loans sell above 100, if payback with interest seems assured. City Pages’ Jeff Shaw noted recently that the Strib’s debt sold for $1.01 in mid-2007.
But that was then. The Strib’s debt has been distressed for months; this June, first-lien notes traded for 60 cents on the dollar. That sank to 55 cents in July, when the Strib stopped paying second-lien holders.
Today? Try 35 cents, according to Standard & Poor’s Leveraged Commentary & Data (LCD).
Even that looks damn good to second-lien holders; you can snap up their debt for around 4 cents on the dollar, if you’re the sort of investor who relishes hopeless causes.
Assuming the Strib’s outstanding loan balance is still near $436 million … and all the debt came on the market … and the price didn’t change from today, you could buy the whole pile for $125 million.
That’s less than a quarter of what Avista paid 20 months ago, and about a tenth of the $1.2 billion McClatchy Co. paid for the paper in 1998.
As I said, this is a parlor game. There are more common ways to value an operation: for example, a multiple of its cash flow — although guessing a newspaper’s future profits seems fairly hopeless right now. You could also figure the liquidation value of assets such as the buildings, equipment and brand.
Chris Donnelly, a Standard and Poor’s LCD vice president, indulged my flight of fancy but is not responsible for it. He did say, however, that this resembles one way a business like the Strib could be sold — “a loan-to-own strategy.”
Donnelly says a hedge fund, for example, could work a deal to buy the debt at fire-sale prices, turn the loans into equity, and own the paper. The price has to be right, of course.
The Strib’s current lenders could do the same thing, but they never got into the deal to operate the business; a new buyer would presumably be prepared.
The Strib has likely been for sale for months, so even this sort of ownership change might not come to pass.
There’s also no good way to predict the fate of newsgathering in any scenario; hedge funds conjure up visions of slash-and-burn cost cutting, though for now, publisher Chris Harte is targeting blue-collar unions — almost certainly on behalf of his current bankers, since his and Avista’s equity has certainly evaporated.