Jan. 20 (Bloomberg) -- New York Times Co. borrowed $250 million from companies controlled by Mexican billionaire Carlos Slim, buying time to sell assets and navigate the deepening advertising slump.

Slim’s Banco Inbursa SA and Inmobiliaria Carso will get six- year notes with a coupon of more than 14 percent and detachable warrants, New York Times said in a statement yesterday. The company said it will use the money to refinance existing debt.

The notes may cost as much as $35 million in annual interest payments, according to Barclays Capital Research. That puts an additional burden on a company that has already cut jobs, reduced its dividend and begun pursuing asset sales to raise cash.

“While it provides some breathing room, this investment doesn’t solve the longer-term issues facing the newspaper industry,” said Fitch Ratings analyst Mike Simonton in Chicago. “It will be even more challenging for the company to generate positive free cash flow in 2009 with this new, heavy interest burden.”

The company is grappling with an industrywide migration of advertisers and readers to the Internet, coupled with a recession that’s forcing U.S. businesses to reduce marketing. Last week, the Minneapolis Star Tribune filed for bankruptcy, joining Tribune Co., which sought protection from creditors on Dec. 8.

‘Attractive Value’

New York Times, with a $400 million credit line expiring in May, is trying to raise $225 million from a sale-leaseback of its Manhattan headquarters and last month said it’s open to funding options including revolving debt, public offerings and private placements. The publisher finished the third quarter with $1.1 billion in debt and $46 million in cash and equivalents.

New York Times fell 20 cents, or 3.1 percent, to $6.21 at 10:40 a.m. in New York Stock Exchange composite trading. The stock had fallen 13 percent this month before today.

The company is paying an expensive coupon rate “to address the concern of investors that they could not repay their bank debt in May,” said Creditsights Inc. analyst Jake Newman in New York. “They were in a pretty dire liquidity situation if they couldn’t repay their bank debt.”

The senior unsecured notes, callable after three years, have a coupon of 14.053 percent and are due in 2015. New York Times may choose to pay 3 percent of the coupon with more debt. The company’s annual cash interest payment will depend on whether it chooses to exercise the payment-in-kind option, spokeswoman Catherine Mathis said in an e-mail today.

‘Symptomatic’

New York Times will pay $21.9 million more in annual interest than it was paying for the credit facility, according to John Janedis, an analyst at Wachovia Capital Markets in New York. The rate is “symptomatic of the current funding environment,” he wrote in a note today.

Banco Inbursa and Inmobiliaria Carso also received warrants for 15.9 million New York Times Class A shares at a strike price of $6.3572, expiring in six years.

Slim, 68, already controls 9.854 million New York Times Class A shares, or 6.9 percent, making him the third-biggest investor outside of the controlling Ochs-Sulzberger family. If he exercises all his warrants, he would own as much as 17 percent. Only Harbinger Capital Partners would have a greater stake, 20 percent as of Nov. 11, according to data compiled by Bloomberg.

New York Times is also seeking a buyer for its stake in the Boston Red Sox baseball team and the cable network that carries its games, according to a person with knowledge of the talks.

Buying Time

Slim’s investment “buys them time so they don’t have to sell the assets at a fire sale,” said Ken Doctor, an analyst at media consultant Outsell Inc. in Burlingame, California. “The ability to fetch a decent dollar from asset sales is probably going to be better by the end of 2009 than now.”

The company may eventually sell its regional newspaper group and the Boston Globe, as well as the baseball club, to focus primarily on the flagship publication while investing online, Doctor said.

Slim probably saw an opportunity to increase his stake in a strong brand at a favorable return, John Morton, a newspaper analyst and president of Morton Research Inc. in Silver Spring, Maryland, said yesterday.

Slim owns America Movil SAB, Latin America’s largest mobile- phone service provider, and Telefonos de Mexico SAB, that country’s biggest land-line operator.

Harbinger Capital and Firebrand Partners mounted a proxy fight a year ago for board seats and more investment in the main business and Internet assets. The hedge funds, which own almost 20 percent of the Class A stock, relented in March after the company agreed to seat two of the four directors they nominated.

Slim didn’t receive any board seats as part of the deal, Mathis said.

‘Daunting’ Outlook

In a December memo to employees, Arthur Sulzberger Jr., the company’s chairman and the publisher of its flagship newspaper, called the 2009 financial outlook “daunting.” New York Times, the third-largest U.S. newspaper publisher, posted a 13 percent drop in ad sales for the first 11 months of 2008, including a 21 percent plunge in November.

The cost of protecting against a New York Times default plunged 164 basis points to 798 basis points, the lowest in two months, according to CMA DataVision. Credit-default swaps, which typically fall as investor confidence improves, pay the buyer face value if a company defaults in exchange for the underlying securities or the cash equivalent.

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

Last Updated: January 20, 2009 11:00 EST