Basics:Newspaper and advertising medium provider for all sorts of places around the country. Focuses on small towns and therefore small publications. Rode a great bull market and decided "we know everything, lets take on insurmountable debt to finance a newspaper acquistion." Blame the credit crisis if you must but that was plain stupid. Regardless this is a rock star of a cash cow and continues to plummet. I'm not sure if I want or ever will enter into a position. If I can wrap my head around the debt covenants I think from a pure valuation standpoint this company could make money on a turnaround.
Stats: P/S: 0.11, P/B:0.9 P/E:2.2 P/FCF 0.85 63million MC. EV/EBITDA: 6.95 Current ratio 0.8.
Whys it cheap: TON's of debt. A ripe 1.351 billion in liabilities. Even if the MC went to 1 million the EV/EBITDA ratio would be an astonishing 6.5, not quite the typical response. Vultures are going insane over it and understandably so.
Its in a dying industry as well, I think in 2005, or whenever the huge Pulitzer acqusition took place, shareholders should have crapped their pants and said "I'll keep my pants but sell the stock." Alas hindsight is always 20/20. Lets move onto the foggy and often stoichastic future and figure out a path.
Debt Breakdown: All figures as of December 26, 2010...from their 10Q.
1.052 billion in debt
-969 million in long term debt
-620,515,000 in an A Term Loan with a 4.125% interest rate: 26million/year in interest.
-279,425,000 revolving credit facility 4.125% : 11.52 million/yr interest
-152,000,000 Pulitzer Notes: 9.55% 14.5 million/yr interest
Total Interest Payments per year of: 52million/year. Ouch. EBITDA of 173 million TTM. Required (2009 amendment) principle payments of ~80million/year 37 million available to the common.
There are numerous covenants in their 2009 Amendment (can't find anywhere easy) that require payment of debt both prepayment and certain leverage ratios. Basically this locks them into an all or nothing. Pay off the debt or eat shit and die. Simple, pure and to the point.
Rambling thoughts: I actually like the debt covenants. Its in a dying industry and clearly management, needs restraint. Is this simply the greatest point of pessimism? Relative valuations lead to mixed results. GCI in some ways is priced more favorably but I hesitate to go to a slaughterhouse and write a thesis on Darwinism, so screw relative valuations.
Quick model: 5%EBITDA decay per year for five years: 133 million. 400 million in debt will be paid off.
Yearly Interest payments of 4.125% and 5.5%, 7.5%: 35.1million, 42million and 52 million respectively.
133-42-80 leave ~11million avail to common. 0.7 (error/tax factor) X 11=7.7...8x valuation gives 61 million MC...in line with current MC with significantly less debt. Very crude calculations. Pretty conservative assumptions especially based on 10year trailing financials.
The downside is protected by, ironically, the leverage. They can't do anything and fundamentally, although dying, local small newspapers are strong. People love 'em and with all that is sweeping the nation (tea party lunacy) a sense of community really seems to warm peoples hearts(nostalgic dopamine rush I guess).
This is tough though, one bad year could very well wipe out shareholders. I think the bull market is going to run for a touch longer and with everyone yield hungry I believe this will get refinanced and likely at a reasonable (read below 5%) rate. I know I would never sleep making this a full position, but being so cheap and being locked into a model that works with no wiggle room the lines are clearly defined.
Under 1.40 this looks like a buy, I suspect I'll pay a 10-20% premium for refinancing clarity. Might be worth a tracking position, 1-2% portfolio, see where the refinancing rates fall and if under 5% double the position and sell at a double. Hmmmmmmmmmmmmmm
Edit 5/4/2011: Even with the stock dropping I have held off. It seems issues with refinancing have occurred. I now wait to see if a permanent loss will happen or I will wait for refinancing to occur and take a hit on the upside.
Edit 5/5/2010: Shares jumped 15% today on the filing that CEO and Chairman bought 100,000 shares at a price of 1.06. This seems great but a look at the proxy shows her salary was over 800k for the past three years and grand total she owns a mere 430k (approx) shares. Her last purchases occurred in 2009 at a price double of today, but only 20,000 shares. This sounds like David Einhorns book and with this new information I will probably hold off for a while.
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