The New York Times Company's 10Q(NYT) contains more details on the company's cash crunch.
Specifically, the company must deliver $400 million to lenders in May of 2009, six months from now. The company has only $46 million of cash on hand, and its operations will likely begin consuming this meager balance this quarter or next. The company has been shut out of the commercial paper market, but has a $366 million short-term credit line remaining that it entered into several years ago, when the industry was strong. It has not yet drawn this cash down, and given the current environment and the trends at the company, we would not take for granted that it will be able to do so.
The New York Times is in discussions with its lenders about the May payment, and management thinks it will be able to work something out ("We expect that we will be able to manage our debt and credit obligations as they mature." Note the use of the word "manage" as opposed to "meet.")
Blodget goes on to note that "Given the current circumstances, if we were that bank, and we were as strapped and scared as most banks are these days, we would certainly be reading the fine print to see what sort of 'material adverse change' clauses the contract might include". Not a good time to have Rupert Murdoch gunning to replace you as America's premier national newspaper.
The New York Times is, in part, a victim of its own success. Its web operation is awesome. It also sort of makes it unnecessary to subscribe to the paper. And so far, no company has figured out how to monetize web page views sufficiently to pay for an operation of the NYT's scale.
One might ask if the same doesn't apply to my employer. Well, not really. We don't have massive overhead like the New York Times does; we commission articles, not staff them. Obviously, everyone in media worries about ad sales and how to monetize the web, but we're not trying to run a massive newsgathering operation. Besides, people are much more attached to physical magazines than to newspapers (except for the Sunday Times, which occupies its own iconic slot in yuppie life.)
Over the last decade, the New York Times has tried to grow its way out of the obvious problems facing the print media: new sections, more pages, more distribution, more web operations. It looks like that strategy is now hitting the wall.
And yet, Murdoch seems to be able to make money with his print operations, including the Post, right there in New York City. I wonder why that is?
How is this a test of the credit crunch?
In the best of times (pun intended) a firm that is loosing money, has a market cap less then it's liquidation value, with deeply entrenched, under-performing management would find it very hard to raise new funds.
Perhaps they're planning on lining up for a bailout?
Papers need revenue from readers and companies advertising products and services. To bring in this revenue they have to print something readers want to read, thus buying the paper, thus getting the advertising in front of eyeballs of the reader, thus making it worth a company's money to advertise in that paper.
Some companies will not buy advertising in papers that have a record of the 'reporters' plagiarizing, spouting propaganda for one political party, writing pure fiction and passing it off as news, leaking government secrets, generally poor journalism, to name a few things. And of many readers will not buy such papers either.
Easy to fix.
"In the best of times (pun intended) a firm that is loosing money, has a market cap less then it's liquidation value, with deeply entrenched, under-performing management would find it very hard to raise new funds. "
Except, in point of fact, the Times was able to secure a line of credit when times were better. That they are not now is the point here.
Actually, the NYT just stinks. I haven't even read the web version in years. Maybe with Obama it will become the new Pravda but I doubt it.
If they have an existing credit facility and there isn't anything written into the deal limiting them from borrowing up to the credirt limit (which would be really weird, since why not just set the limit lower to start with) the lenders will have to let them borrow. They are legally and contractually obligated to do so and could be sued if they fail to honor their obligations.
Three weeks, at the height of the crisis, a certain (not to be name here) company decided to borrow 999 million dollars, just a million short of its credit limit. My own employer (which was seeing some bad press itself back then) was on the hook for over 10% of that. Although said company's credit rating was far from golden, we had no choice but to pony up. (And all's well that ends well, as the crisis defused this company has paid back most of that loan).
They are legally and contractually obligated to do so and could be sued if they fail to honor their obligations.
The lawsuit might prove cheaper than the loan.
JonF: I think that's what the remark meant, about the lenders now frantically searching for some part of the contract that lets them get out.
@Megan_McArdle: Like I said before, I accept that there's a credit crunch. I just don't think it's something warranting my sympathy.
Them: We were stupid enough to predicate our entire business model on being able to roll over debt at ultra-cheap rates, no questions asked ... and now we can't!
Me: *not caring*
Them: We now have to pay *slightly more* for loans than we used to. I mean, still only a third of most people's credit card rates, but it's soooooo hard!
Me: *not caring*
Them: If we go down, we might *hurt the economy a little less than a massive bailout would*! Better bail us out!
Me: *not caring*
Find a reason for me to care. Really, try. The fact that there will be high unemployment doesn't impress me. Yes, it's unfortunate, but propping up clueless businesses doesn't somehow delete the underlying economic realities. If they had just let Bear Stearns go to the wolves, we would have entered a sharp recession ... and be just a few months from emerging from it by now.
Instead we get unnecessarily prolonged readjustment, worsening moral hazard, and an entitlement mentality from the very unproductive enterprises we don't need right now.
Oh, I forgot: there *is* one way to make me care: let me borrow at 1% by putting up junk collateral, like the well-connected get to. It's an emergency! I promise.
Re: I think that's what the remark meant, about the lenders now frantically searching for some part of the contract that lets them get out.
In my own example I gave there was no such search. The loan agent sent a demand for funds and we had no choice but to honor it (though we did have every head honcho except God sign of on it). A finance company that renegued oin a deal like this would not only be liable for civil action, but would permanently damage its reputation, and raise questions about its own solvency. We are all claiming we are past that sandtrap now so I suspect the NY Times will get its money, with a smile up front and figers crossed behind the back. (Heck, we even have to loan to companies in Chapter 11 when their letters of credit are called in by their unpaid vendors.)
Yes, JonF, I "get" that your company was obligated to make the loan ... because you didn't have an out ... hence, the remark above about the NYT's lenders *looking* for an out. Doesn't mean they'll find one. Doesn't mean they'll reneg even if they don't find one. But they'll damn well look for one.
I don't think that Blodgett is reading the 10-Q correctly. As far as I can tell from a quick review of the 10-Q, (i) the NY Times does NOT have to "deliver $400 million to lenders in May of 2009", and (ii) the Times does NOT have "a $366 million short-term credit line remaining that it entered into several years ago".
Instead, what the times has is two revolvers, each for $400 million, one of which matures May 2009 and the other matures in 2011. That doesn't mean that the Times must "deliver $400 million to lenders in May of 2009" - it means that aggregate borrowing under the agreements can't be in excess of $400 million after May 2009. Right now, they've drawn down $434 million, leaving $366 million available for future borrowing. If nothing changes between now and next May, and they aren't able to get a new credit agreement in May to replace the $400 million in availability that is expiring then, the Times will have to pay lenders ONLY $34 million (the excess of borrowings over the $400 million that they will then have available).
According to the Times's 10-K, it also has $99 million in MTNs coming due in 2009. But in any event, I don't see how Blogett says that the Times will have to "deliver $400 million to lenders". It seems to me that Blodgett is just misreading the Q.
Maybe if the NY Times goes under when some faction in the State Department wants to make an argument, they can publish it themselves rather than writing it and sending it to a "reporter" to put the "journalism" stamp on it. Same goes for the Treasury department, etc.
Articles in low brow publications are re-written press releases from corporations touting new products. Articles in high brow publications are re-written press releases from factions in government or academia trying to build consensus for moving the bureaucracy in some direction. Is the printed NY Times newspaper really necessary for this? I guess it does provide some value in being a trusted brand. Sorta. Less and less as time goes by.
The New York Times is not by any means the best or most critical news-source in the world, but it does come out with some nice living, opinion, and analysis pieces. I wonder if it can shame people into donating money on a periodic basis.
It may even be able to re-structure itself so that some kind of charitable foundation is interposed to take the donations, and distribute them.
Megan,
I have to agree with Tyler. This is no test of the credit crunch!
The NYT is hemorrhaging money and readers. It seems like every day I read about how both numbers are lower. And always rumors of layoffs.
Nobody is just going to lend them money. The best they can hope for is an investor to come in, buy them up, and revamp their operations to make them profitable again.