From page 20:At the end of 2008, the company had approximately $3.8 billion in long-term debt, of which approximately $2.2 billion was in the form of borrowings under bank credit facilities and the balance was in the form of unsecured public notes. This debt matures in part in 2009, 2011 and 2012. While the company’s cash flow permits us to lower the amount of this debt before it matures, a significant portion of it may need to be refinanced. Access to the capital markets for longer-term financing is currently restricted due to the unprecedented and ongoing turmoil in the capital markets. At the end of 2008, the company had approximately $1.2 billion of additional borrowing capacity under its revolving credit facilities, providing near-term liquidity to fund its needs and to repay debt maturing in 2009 and beyond.
From page 55:
On Oct. 31, 2008, the company amended each of its three revolving credit agreements and its term loan agreement. Under each of the amendments, the existing financial covenant requiring that the company maintain shareholders’ equity in excess of $3.5 billion was replaced with a new covenant that requires that the company maintain a senior leverage ratio of less than 3.5x. The senior leverage ratio is the ratio of the company’s senior unsecured debt outstanding to its EBITDA measured on a trailing four quarters basis. The new covenant also requires the company to maintain a total leverage ratio of less than 4.0x. The total leverage ratio would also include any subordinated debt the company may issue in the future. Currently, all of the company’s debt is senior and unsecured. At Dec. 28, 2008, its senior leverage ratio was 2.56x.
Also, in connection with the amendments, the company agreed to provide future guarantees from its domestic wholly-owned subsidiaries in the event that the company’s credit ratings from either Moody’s or S&P fall below investment grade. If the guarantees are triggered, the existing notes and other unsecured debt of the company will become structurally subordinated to the revolving credit agreements and the term loan. The company believes the amended facilities provide it with ample liquidity to operate its business and pursue its strategic objectives.Please remember: We have a lot of lay readers, so don't assume a lot of expertise in your comments, below. To e-mail confidentially, write gannettblog[at]gmail[dot-com]; see Tipsters Anonymous Policy in the green sidebar, upper right.
[Image: today's Arizona Republic front page, Newseum. Gannett agreed to pay $2.6 billion cash in 2000 for the Phoenix paper, plus The Indianapolis Star and dailies in Indiana and Louisiana; it was near the top of the market for newspaper values]
Jim, you're a longtime business writer. Not attacking you or anything, but shouldn't you know what all this stuff means?
ReplyDeleteI have a general enough idea; that's why I posted them. But I'm now looking for deeper insight.
ReplyDeleteAlso, bear in mind: Blogging about Gannett requires expertise in marketing, production, finance, technology, distribution, human resources -- well, you get the drift.
That is why I rely on you and other readers for help. It's all about crowdsourcing, to get to the truth.
"Crowdsourcing"? Drinking the kool-aid?
ReplyDelete:-)
Gannett's crowdsourcing
Key takeaways for the uninformed:
ReplyDelete1) Gannett has approx. $600 million in debt maturing in 2009 -- this will be repaid with free cash flow or refinanced on its line of credit.
2) All other debt obligations mature in 2010,11, and thereafter.
3) Gannett was well in compliance with its covenants in 2008 and should continue to be in 2009.
4) The liquidation value of this company is essentially zero (there is no bid for its hard assets) so it is in the best interests of its bankers not force bankruptcy. In other words the recovery value (in bankruptcy) is far less than the value of the company as a going concern.
2:51. It would be a mistake for Gannett employees and shareholders to think that bankers holding $600 million in debt that matures this year will allow Gannett to remain long insolvent. Any Gannett property has substantial exposure through Involuntary Chapter 11. That chapter gives any group of three or more creditors, holding debt of $10,000 or more, authority to drag Gannett or any subsidiary kicking and screaming into any federal bankruptcy court in the land. The creditors who hold the heavy notes will be at the front of the pack. Every single Gannett property and the parent company will pay its bills. The company may have been well in compliance with creditor covenants last week or last month, but this economy is going away at light speed. When insolvency is imminent, Gannett will close and liquidate properties one by one as each one fails. Bank on it.
ReplyDeleteJim or anyone for that matter. I've been reading the SEC filing---if I'm understanding this correctly, Gannett made about 1 billion net last year. Note, this is removing the 7.95 billion goodwill non-cash expense.
ReplyDeleteStill digging on when those big ass debts are due in 2010 and 2011.
BTW, I've never read one of these before but it's interesting what you find in there. Total of 7,900 in staff reductions in 2008.
In the finance world, what does the phrase "senior leverage ratio of less than 3.5x" mean?
ReplyDeleteThis comment has been removed by a blog administrator.
ReplyDelete12:34 AM -- This is 10:32 PM, thanks for the information.
ReplyDelete12:34 am: Thank you, very, very much; you have confirmed what I suspected.
ReplyDeleteAt the author's request, I'm reposting this comment, with a corrected figure ($507 MILLION rather than BILLION):
ReplyDeleteJameswpr said...
The 10-K says Gannett was forced to amend its its revolving credit agreements on Oct. 31 because because of the falling stock price. If it had not done so, the company would be in default on its term loan and revolving loans. That's because Gannett's market cap, $507 million today, has fallen far below the $3.5 billion the lenders had required.
The company also agreed to put up as guarantee certain assets or payments from corporate subsidiaries such as, maybe, the New Jersey group, if the revolvers and the term loan debts were to fall below investment grade. Since that debt appears to have just recently been downgraded, those guarantees would seem to be now be in effect.
In addition, if the debt were to fall below investment grade, the 10-K spelled out that the owners of the revolver and term debts are first in line to be repaid before others, should the company go into bankruptcy.
The terms of the debt were amended in October because Gannett's lenders figured the company's total stock value was headed so low that there wasn't enough value in the company to provide the lenders confidence that the loan was a good risk under the agreed terms. So Gannett and the lenders amended the loans to require Gannett to keep the dollar amount of the term loan and drawn revolvers amounts to be no more than 3.5 times annual operating income.
It's possible that Gannett was forced to pay a higher interest rate because of this change.
The 2.56 debt-to-operating-income ratio is not a high ratio for corporate America. But given the rate at which income is falling, the company might conceivably hit the 3.5 ratio cap.
If that happens, Gannett and the lenders would again seek to amend the debt terms, and the company may be asked to pay off some of the debt, or the interest rate might be hiked, or Gannett might try to sell assets. The company might even be forced to give the lenders some ownership of the company. But if it came to that, given that Gannett is paying its loans, the lenders might well just agree to a loan extension.
These issues are probably among the reasons the ratings agencies recently downgraded the Gannett's stock. It's also a likely reason that Gannett moved to pay down $325 million in debt this year.
The 10-K is also telling us that Gannett has $3.8 billion in loans coming due between now and 2012. Because the corporate credit markets are currently shut down, Gannett can't say if it'll be able to refinance when the loans come due. It's a good guess that the corporate debt markets will be back into shape at least by 2010, but who could really say?
If the debt markets don't come back, Gannett's saying it can pay down $1.2 billion of the debt using the untapped portions of its revolver credit, which is the equivalent of using one credit card to pay off another.
3/04/2009 12:34 AM