McClatchy moves to cut debt

Offers to buy $1 billion in bonds

McClatchy NewspapersMay 22, 2009 

— The McClatchy Co. on Thursday made a bold bid to reduce its huge debt burden, offering to buy out its bondholders for as little as 18 cents on the dollar.

The move, if successful, could pare down the Sacramento newspaper chain's debt considerably and bring McClatchy some financial breathing space as it tries to fight its way out of a steep slump in profit and revenue.

"We see an opportunity to reduce the amount of public bonds," said Elaine Lintecum, McClatchy's treasurer.

McClatchy, which owns The News & Observer, The Charlotte Observer and 28 other daily newspapers, wants to buy back up to $1.15 billion in bonds. In exchange, it's offering $60 million in cash and $175 million in new bonds carrying a hefty 15.75 percent interest rate.

The company is asking its lenders to forgive a significant amount of debt, but the offer might be attractive because McClatchy's bonds already trade at a steep discount.

Wall Street responded enthusiastically to McClatchy's proposal, sending the company's stock up 19 cents, or 30 percent, to 82cents Thursday in New York Stock Exchange trading, its biggest gain in more than two months.

McClatchy owes a total of about $2 billion in bond and bank debt. Its big drop in profits has left some on Wall Street speculating that the company will default on its bank loans this fall by failing to maintain minimum levels of cash flow required by its lenders.

But those bank covenants are based on a formula involving McClatchy's total debt burden, which means a substantial reduction in bond debt would give the publisher more breathing room.

Despite the severe downturn, most newspapers remain profitable on an operating basis, The Associated Press reports. McClatchy executives have insisted the company will survive and thrive.

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