Newspaper publisher McClatchy reverses 4Q losses; has agreement to extend deadline on debt

McClatchy cost cuts lead to profit; debt deal seen

NEW YORK — McClatchy Co. reported a profit for the fourth quarter on Wednesday and said most of its lenders agreed to give the newspaper publisher more time to repay its debts.

The deal gives the company more room to maneuver through an advertising slump that has lasted for almost two years. McClatchy, which owns The Miami Herald, The Sacramento Bee, The Kansas City Star and 27 other dailies, said revenue continued to slide in the fourth quarter, but at a slower pace than earlier in the year.

McClatchy shares rose 12.9 percent.

Like the rest of the newspaper business, McClatchy spent 2009 shrinking itself to match dwindling ad revenue in the recession. It ended the year with about two-thirds of the payroll it had in the middle of 2008.

Many publishers — McClatchy included — also went into the downturn with big debts from acquisitions. McClatchy took on the bulk of its $1.95 billion in debt in 2006 to pay for its takeover of the Knight Ridder newspaper company.

A part of that was scheduled to be paid back by 2014, but like a homeowner refinancing a mortgage, McClatchy is reworking the deadlines. The company plans to sell $875 million in bonds due in 2017 and will use those funds to pay off $614 million it owes to banks and buy back $190 million in bonds that come due over the next four years.

It also asked lenders to push back the deadline for repaying roughly $264 million in remaining bank debt from 2011 to 2013 in return for higher interest rates. It wasn’t immediately clear how much McClatchy’s annual debt payments will change. Interest rates on the new bonds haven’t been set.

The company says lenders representing 90 percent of its debt have agreed to the plan.

Shelly Lombard, a media analyst with Gimme Credit, said the refinancing should help McClatchy avoid a credit squeeze that could have triggered a bankruptcy filing in 2011. More than a dozen newspaper publishers have sought bankruptcy protection since December 2008.

“It remains to be seen whether McClatchy can get this deal done,” she said. “But we’re back to a market where it seems like anyone who has a pulse can sell bonds.”

McClatchy CEO Gary Pruitt pointed to improving revenue trends and a growing online business in a conference call with analysts Wednesday.

McClatchy’s ad revenue fell 20.5 percent in the fourth quarter from the same period a year earlier, an improvement from the 28.1 percent decline in the third quarter. And Pruitt said the ad picture steadily improved over the last three months of the year: A 25.9 percent drop in October, 19.6 percent in November and 14.9 percent in December.

Meanwhile, the company’s online ad revenue climbed nearly 15 percent.

“Conventional thinking holds that newspapers are left behind as advertising migrates from print to the Internet,” Pruitt said. “That’s not true at the McClatchy Co.”

Still, digital ads have not made up all of the difference. They accounted for about $188 million in revenue in 2009, but McClatchy’s overall ad revenue still dropped by about $426 million.

And Pruitt acknowledged that the company has more cost cutting to do this year as revenue keeps falling. He didn’t say whether that would require more layoffs.

Fourth-quarter revenue dropped 17 percent year-over-year to $393 million. With help from falling newsprint expenses, McClatchy earned $25.8 million, or 30 cents per share. That compares to a loss of $27 million, or 33 cents per share, in the same period of 2008, when it booked a hefty charge to account for the falling value of its newspapers.

McClatchy had to write off $26.3 million in the most recent quarter because of the falling value of a 10-acre property it is trying to sell next to The Miami Herald’s main building. The company tried to close the deal before the end of 2009 but is giving the buyer another year to line up financing.

McClatchy shares rose 64 cents to close at $5.60, surpassing the previous 52-week high of $5.43. The shares have traded as low as 35 cents in the past year, as investors worried about McClatchy’s ability to manage its debt.