By: James McLaren, special from Forestweb
(Forestweb.com) The New York Times Co. has responded to a lawsuit by bankrupt Enron Corp., saying the trader owes the publisher money over newsprint derivatives rather than the other way around. It is the fourth such newsprint derivatives lawsuit by Enron, which is now seeking a total of $55 million from some of the largest newspaper publishers in the U.S.
Enron filed a lawsuit July 17 in U.S. bankruptcy court in the southern district of New York seeking $8 million from The New York Times Co. over alleged failure to pay for its newsprint hedges.
The Houston-based company earlier this year sued Denver-based MediaNews Group Inc. for $16 million over newsprint hedges. In mid-2002, Enron sued Chicago-based Tribune Co. $22 million and San Jose, Calif.-based Knight Ridder for almost $9 million.
Tribune, Knight Ridder, and the Times Co. are among the five largest newspaper chains and newsprint consumers in North America.
The Times Co. said in a statement it cancelled its agreement with Enron in early 2002 before the hedging contract went into effect. “We maintain that the bankruptcy and Enron’s misrepresentation of its finances constituted the events of default under the contract,” the company said. “Enron claims it is owed $8 million under the contract and the Times Company contends that it is owed $629,000.”
An Enron spokesperson explained the contract was not for physical newsprint tonnage. It set a “locked-in price” for the newspaper company and is part of a swap formula tied to real transactions in the larger marketplace.
For example, the Times Co. and Enron could have agreed that newsprint prices for two years would be at $500/tonne. If actual prices come in higher, the buyer pays the seller the difference. If prices are lower, the seller pays.
A Times Co. spokesperson said the hedges covered a “tiny” amount of the newsprint that the newspaper chain consumes. The Times Co. consumes more than 600,000 tons of newsprint annually, according to industry estimates.
He said based on modeling of the value of the contract today, “we would be owed.”
But the Enron spokesperson told Forestweb, “They owe us.”
It was not clear if the lawsuit covered only the period of hedging until the contract was terminated or if it applied to the leftover time of the agreement.
The Times Co. agreed to the derivatives plan in October 1998 and ended it in January 2002.
Tribune’s hedge covered 13,000 tonnes of paper over a five-year period ending in 2002, according to press reports of the lawsuit. Knight Ridder had a seven-year agreement ending in 2008 that covered 25,000 tonnes.
The Enron spokesperson could not comment on the status of the prior lawsuits.
Before its bankruptcy in late 2001, Enron had been one of the largest U.S. corporations and at one point was the seventh largest newsprint producer in North America. It is currently trying to sell its lone remaining newsprint asset, its large Stadacona mill in Quebec City.