How Sick is Gannett?

Tribune Co. is in bankruptcy. So are the owners of the Chicago Sun-Times, Philadelphia Inquirer and Daily News, Minneapolis Star Tribune, New Haven Register and many smaller newspapers. McClatchy is trying to refinance its debt. The New York Times Co. is struggling with its financial obligations.

And now it looks like industry giant Gannett may be in trouble. TheDeal.com, crunching Gannett's numbers, suggests that the company is facing a $400 million debt payment within two years that it may have trouble paying. "Gannett as we know it will be lucky to last through June 2011," the financial news site suggests. Uh-oh.

The full, highly detailed analysis is worth a read. Like McClatchy, New York Times Co. and others, Gannett has been operating with a load of debt, in part because of acquisitions over the years, but the falloff in the newspaper business isn't generating enough cash to make the payments. Kind of like if you take out a huge mortgage on your house and then have a sharp drop in income. 

This is why Gannett's debt is rated as "junk" by the Wall Street ratings firms. The current credit crisis is just making the situation worse—it's all but impossible for big companies to refinance debt these days, especially big companies that own lots of printing presses that just aren't printing money like they used to. The Deal concludes that Gannett is going to have to do something radical, such as defaulting on the bonds to try to force a restructuring by its lenders. As we've seen in Philadelphia and Minneapolis, that's a tactic that could put the behemoth publisher into bankruptcy court.

This will be interesting to watch. Late last week, Gannett CEO Craig Dubow announced that he'll be taking a four-month leave of absence to deal with back problems, news that further rattled Wall Street, even as rumors circulated of more cuts and layoffs at the company. I wonder if Gannett itself will follow Dubow onto the disabled list.

Comments

[edward]

It's not just GCI that is in this sort of trouble, but also MNI. In fact, I am expecting a bankruptcy filing within the next few weeks if not days as McClatchy chokes on its debt.
Gannett has several more rounds to go before it reaches this point. What I found fascinating in that TheDeal.com story is the seeming inevitabiity of a bankruptcy outcome, given that debt-holders have an incentive through credit default swap (essentially insurance policies) to see the company go under because they will make more money that way. That got me going on the thought about how many other newspaper companies are in these straits. Is the bankruptcy of the NY Times now inevitable because of its bond debt?

[Dennis Yu]

While US traditional media is getting hammered-- whether the publishers like you mention, radio (clear channel in chapter 11 now), and yellow page players (DEX and Idearc), you should consider that the Times of India is rocking it! We can learn from international players to consider how US players can turn it around, instead of the gloom and doom of online eating up offline-- a tired story to be played for years to come.

Some other players are embracing social media, allowing frictionless publishing (not the traditional newsroom model of daily meetings to review what goes on the front page, nor unionized staff). Move nimbly with fewer staff-- just like this excellent blog!

Looking forward to seeing you at the Ultra Light local event in a few weeks.