A Reuters analyst urges caution to those banking on the McClatchy Company being out of the financial woods.
“McClatchy is marketing $875 million of bonds this week. But bond investors should be wary. McClatchy’s performance will be tough to maintain,” writes Lauren Silva Laughlin.
McClatchy has cut costs, mainly through layoffs, to recover from near bankruptcy, and digital advertising revenue grew by 15 percent in 2009 compared to 2008. But online revenue is still only 16 percent of the total, which was down by 20 percent in the 4th quarter of 2009.
“The worry is that McClatchy can’t cut costs fast enough to bridge the time it will take to transform print revenue to digital,” Laughlin says. “Without ending the print declines, lost revenue could easily consume the benefits of cost savings.”
McClatchy is selling senior secured notes due in 2017 in a deal that is expected to price on February 4. The publisher intends to use the net proceeds of the offering to repay approximately $614 million under its credit agreement and to fund its cash tender offer for approximately $166 million aggregate principal of notes due June 1, 2011 and approximately $24 million of senior notes due 2014.
Tags: bond sale, projections, revenue
I just buy corporate bond funds with intermediate target maturities. Corporate bonds are still paying a little bit, and Corporate America is fairly healthy right now. Whether they can keep the bottom line stable with a constantly shrinking customer base (thanks to a shrinking number of gainfully employed people) is a legitimate question, but it’s a stretch to say they can’t service their debt of the next seven years if they are investment-grade now. Even though inflation is a near certainty, we still don’t know when it’s coming, and there’s no point, in my opinion, bailing now when it could be two or three years. In any event, the inflation is much more likely to be Jimmy Carter-style vs. Zimbabwe-style, and Carter-style inflation won’t drive intermediate term bonds down in price anywhere nearly as bad as what you’d call a bubble asset, like a dot-bomb stock or a house out in the Arizona desert. As for treasuries, there’s not much point in investing in them now even without a bubble scare. The returns are so pitiful, you might as well hide the cash in your mattress. TIPS are a fine concept, but you had better have your TIPS in some kind of tax-advantaged account, since the nominal return is taxable. Since the rate on them is essentially zero above inflation, when inflation picks up your economic loss will be the nominal return times your tax rate.
What I want to know is what the “professional investment managers” are telling their retired customers to do about their retirement income? What is being said to retirees that hold these bonds? What will the federal gov do if these start to fail? Bail them out through inflation?