The most interesting new thing is how the Strib’s financial house of cards will look if the Guild and Teamsters agree to ownership’s $20 million cut, part of a proposed $30 million slashing.
The headline: a change in formal ownership.
Avista Capital Partners is out (their equity evaporated long ago). The paper’s senior creditors would do what’s known as a debt-for-equity swap; in return for assuming ownership, they’d write down the roughly $400 million they’re owed to $200 million.
I’m not sure anyone would pay $200 million for the Strib right now, but these folks have tacitly owned the paper for months, since the Avista ownership group stopped paying its debts. I don’t know who the managing partner or entity would be in such a deal.
Junior creditors, originally owed $96 million, would also be wiped out — another acknowledgment of reality.
When the plan was announced earlier this week, ownership gave labor a mid-January deadline. One possible explanation: I’m told a $40 million line of credit runs out in March 2009 — at the latest.
The company’s pension plan also plays a part in the deal. A little-known fact is the plan has been well-funded throughout the current struggles — until now. Before the market crashed, the fund had 120 percent of its estimated payout; that’s now 85 percent. The shortfall creates a potential liability if the market doesn’t bounce back when pensioners need to be paid. Although the Strib’s piggy bank remains healthier than many right now, the proposal would freeze pension increases and eliminate discretionary payouts.
One staffer’s back-of-the-envelope calculation is that the Strib would save $4 million between the newsroom buyouts, pension freezes and compensation cuts. The current newsroom budget is roughly $22 million, though I’m not sure if all $4 million comes out of that pot.
A few more specifics about the $1.9 million in pay cuts: Merit pay would be slashed at least in half, saving $700,000. (It will interesting to see who management still deems worthy of their largesse.) A three-year wage freeze saves $313,000, and foregone night bonus pay shaves $300,000. Another $300,000 goes bye-bye with newsroom “team leaders” reclassified as supervisors to make them ineligible for overtime.
I’m told these were all things ownership asked for last summer but didn’t get. There’s definitely no guarantee they’ll get them now — just like there’s no guarantee the Teamsters will agree to the remaining $16 million or so. And even if labor does say yes, negotiators will want something more than a promise that the new bosses won’t come knocking again soon.
More details and clarifications as I get callbacks.
Update: The Strib’s Neal Justin contributes news that the buyouts are “in addition to $30 million in cost cuts.” That may be because ownership doesn’t save money right away. The original story has been corrected to say buyouts are part of the $30 million.
Also, City Pages’ Kevin Hoffman notes that the Strib previously reported Credit Suisse as a senior creditor. I don’t know how big a stake Credit Suisse now holds.
The Swiss bank arranged Avista’s original $340 million loan, together with the Royal Bank of Scotland (since taken over by the British government). A Standard & Poor’s analyst told me in October that Credit Suisse and RBC had syndicated the loan to many investors.