Financial analysts polled by Reuters are not optimistic about the McClatchy Company’s future despite the breathing room the newspaper publisher has made for itself by restructuring its debt through bond sales. One gives the company 18 months to two years to figure out how to make enough revenue online to sustain itself.
Things looked better in January when the company announced “encouraging fourth-quarter results,” Reuters says. Then the company put off its next major debt payment until 2013 by agreeing to higher interest rates.
“But McClatchy’s swaps have retraced all of January’s strengthening and are now 157 basis points wider than when its refinancing was announced, at about 1016 basis points as of Tuesday, according to data from Markit,” the Reuters report says.
“‘I think the market is smart enough to know that there are some fundamental issues here and what they’ve done is basically delayed the inevitable,’ said Shelly Lombard, analyst at independent research service Gimme Credit.”
“Despite the fact that McClatchy’s online revenues are growing rapidly, they are still a small portion of its overall business and are not expanding quickly enough to replace newspaper revenue, she said.
“On the positive side, Lombard said she does not expect McClatchy to run into problems for at least 18 months and probably two years, and investors can collect their coupons until then.”
G.D. Gearino, a former business editor at McClatchy’s News & Observer in Raleigh, provides a good explanation of McClatchy’s bond swap on his blog. He also points out that deep in the financial statements we find that “the new bonds, unlike the previous ones, are backed by McClatchy’s assets. Bondholders will be on equal footing with the banks. And one of those assets, of course, is The News & Observer.”
We saw the Reuters report mentioned on the Fitz & Jen blog at Editor & Publisher, where, in their daily market roundup, they point out that on Tuesday McClatchy “took the sector’s biggest hit percentage wise with its shares off 5.7 percent to $5.12. Reuters reported that credit default swaps for MNI indicate the market is nervous about the company.”