Lee Haggles With Goldman, Monarch as Debt Default Looms: Corporate Finance

Lee Enterprises Inc. is offering lenders higher rates and equity interests to refinance debt as the owner of the St. Louis Post-Dispatch seeks to avoid bankruptcy, according to four people familiar with the matter.

Creditors Monarch Alternative Capital LP and Goldman Sachs Group Inc. (GS) are leading talks with the Davenport, Iowa-based company and its adviser, Blackstone Group LP (BX), said the people, who declined to be identified because the discussions are private. Lenders will also be asked to approve a pre-packaged bankruptcy, which the newspaper owner will pursue if an out-of- court restructuring doesn’t gain enough support, they said.

The publisher of 53 daily newspapers in 23 states has to refinance $1 billion of loans and bonds that mature in April after abandoning plans to sell $1.06 billion of high-yield notes in May. Its shares have plunged 67 percent in the past year as newspaper advertising revenue are squeezed by competition from the Internet and the U.S. economic recovery is restrained by a 9.2 percent unemployment rate.

“We are in substantive and productive discussions with key lenders about an extension of our credit agreement,” Mary Junck, Lee’s chairman and chief executive officer, said yesterday in a statement that didn’t name the lenders or a pre- packaged bankruptcy plan. “Investor sentiment will improve when questions about our refinancing are resolved.”

Photographer: Whitney Curtis/Bloomberg

A pedestrian passes a St. Louis Post-Dispatch newspaper box in St. Louis, Missouri. Close

A pedestrian passes a St. Louis Post-Dispatch newspaper box in St. Louis, Missouri.

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Photographer: Whitney Curtis/Bloomberg

A pedestrian passes a St. Louis Post-Dispatch newspaper box in St. Louis, Missouri.

Dan Hayes, a spokesman for Lee, didn’t immediately return a telephone message seeking comment. Representatives from Blackstone and Goldman Sachs said they couldn’t comment and a call to Monarch wasn’t returned.

‘Alternative Financing Options’

Lee, owner of newspapers from the Wisconsin State Journal to the Arizona Daily Star, “will have to seek alternative financing options to meet these maturities to avoid default,” Standard & Poor’s analysts wrote in a May 12 report after the $1.06 billion bond offering was pulled. The firm cut its preliminary rating one level to B- from B and then withdrew the grade.

Moody’s Investors Service said in April it was “critical” for the company to address the maturities. The firm took away its Caa1 grade after the deal was pulled.

Lee’s $879 million term loan arranged in June 2005 maturing in April pays 3 percentage points more than the London interbank offered rate, according to data compiled by Bloomberg.

The proposed deal includes a new first-lien loan that will have a higher interest rate and a consent fee, the people said. Lee is also asking lenders to swap into a new $175 million second-lien loan that has a higher yield and equity interests in the company, they said.

Bond Offering

The average trading price of Lee fell below the $1-a-share minimum standard of the New York Stock Exchange for 30 trading days, the company said in the July 14 statement. Lee, which has declined 56 percent this year through yesterday, fell 20 cents to 88 cents at 9:40 a.m. on the exchange.

The company also is seeking to sell debt to refinance about $144 million of notes owed by its St. Louis Post-Dispatch LLC unit, which Lee acquired in 2005. The unit’s flagship newspaper is Lee’s biggest and accounted for 15 percent of the company’s total paid daily newspaper circulation of 1.38 million, it said in a Dec. 10 filing.

Lee has struggled with declining revenue as readers migrate to Internet news sources, which often are provided for free and aggregated by companies such as Google Inc., operator of the world’s largest Web search engine.

Advertising revenue, which represents 72 percent of total revenue, fell 8.9 percent to $560.1 million in the fiscal year ended Sept. 26. That followed a 21.6 percent drop in 2009, according to regulatory filings.

Tribune, McClatchy

Lee isn’t the only newspaper publisher to struggle in the Internet era. Tribune Co., the owner of the Los Angeles Times and Chicago Tribune that was acquired by billionaire investor Sam Zell in a leveraged buyout in 2007, filed for bankruptcy the following year. Following a 45 percent drop in advertising revenue over three years, Miami Herald publisher McClatchy Co. raised $236 million in May by selling 14 acres of property that included the newspaper’s headquarters and parking lot.

Lee said in April that it planned to sell $680 million of senior secured notes due in 2017 and $375 million of second- priority notes due in 2018. It also had planned to sell as many as 8.9 million shares.

“Although we were pleased with investor interest, the proposed offerings did not result in terms and conditions that met our expectations or recognize the future value we expect for Lee stockholders,” Junck said in a May 2 statement.

To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net; Jennifer Sondag at +1-212-617-2716 or jsondag@bloomberg.net

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