Saturday, December 03, 2011

Lipstick on a Pig: Lee Enterprises Declares a “Favorable” Bankruptcy

(a continuing series by contributor Mark Wilson on the troubles at Lee Enterprises, Inc. and the Post-Star)

Despite efforts to spin the news favorably, Lee Enterprises, Inc, the deeply-indebted corporate owner of the Glens FallsPost-Star, announced late Friday afternoon that it had failed to reach a refinancing agreement with at least 95% of its lenders. It will file for Chapter 11 bankruptcy protection later this month. 
The move is an effort by the Iowa-based news publisher to coerce a reluctant six percent of the banks who have lent it money to extend the maturity date of roughly one billion dollars in loans. The loans are currently due to be paid in full this coming April.
The refinancing plan, crafted by Lee earlier this year—after it failed to find backing to pay off the banks by issuing junk bonds—divides its current debt load into three parts:
  • a $689.5 million term loan with an additional $40 million revolving credit, both due in December 2015. The interest on this debt will be a minimum of 7.5%.
  • a $175 million second-tier loan with a 15% interest rate due in April 2017.
  • an unspecified $175 million refinancing deal for the balance of the debt the company incurred when it bought newspapers from Pulitzer, Inc. in 2005.
Lee’s failure to find backing to restructure the remaining Pulitzer debt was the deal breaker for the more cautious lenders who must now be forced by the Delaware bankruptcy courts to accept the pre-packaged bankruptcy plan. In place of a new financing to cover the since-adjusted $138 Pulitzer balance, the bankruptcy will extend the maturity of $126 million of the existing notes to December 2015 at an interest rate that starts at 10.55% and increases by .75% annually.
One other significant condition of the bankruptcy plan is the issuance of 6.7 million shares (roughly 13% of outstanding shares) of stock to be divided among second-tier lenders. 
Diluting stock to this degree will depress the share value of Lee stock. Apart from the impact this will have on individual and institutional stock holders (including any Post-Star employees who hold stock and stock and options as part of their compensation packages), the move means Lee’s stock most certainly will be removed from the New York Stock Exchange listings in the new year. As a condition of continued listing, the NYSE requires a company stock to hold a minimum share price of $1.00 and not drop below that threshold for more than 30 days. Lee’s share price dropped below the threshold in mid-July this year and has not risen above it since. In an official delisting warning issued in August, the NYSE compliance board gave Lee until January to correct the situation. 
A share of Lee traded at 53¢ at Friday’s closing bell—shortly before news of the impending bankruptcy filing was released.


Stephen said...

It is actually a decent deal. The 6% bond holdouts probably were not cautious banks. Remember that Lee was targeted by a vulture investment group that wanted to drive them into an in-court bankruptcy, gain control and then likely break it up. This out of court deal avoids this. In short, they were saved by, of all people, Goldman Sachs, who arranged the ealier debt agreement from this year and prevented the vultures from gaining the control needed to force an out of court chapter 11. Lee has escaped by the skin of their teeth.

Stu said...

Whenever I heard about a company declares a bankruptcy I can't help myself thinking of all workers in the company. It would be there crucial moment with no longer income and no longer job. It is quite depressing when you hear this kind of situation.