By: Lucia Moses
As the Enron Corp.’s legal and financial problems mount, Everestlike, so has the number of newspaper companies that have canceled newsprint contracts with the collapsed energy and trading powerhouse. And questions continue to swirl around the future of its paper mills.
The Tribune Co. has said good riddance to its financial hedge contract with Enron, which cost Tribune an extra $5 million in the fourth quarter. The New York Times Co. has scrapped its financial hedge contract, exercising a clause that lets it do so in case of bankruptcy or other default. Media General Inc. canceled its hedge contract late last year. And the E.W. Scripps Co. has simply stopped getting newsprint shipments from Enron.
Other swap customers — such as MediaNews Group Inc. and North Jersey Media Group Inc., parent of The Record in Hackensack, N.J. — continue to abide by their contracts while evaluating their legal options. Knight Ridder, which hedges about 2% of its newsprint supply through Enron, would not comment on the status of its contract.
Enron began offering financial hedges, or swaps, for newsprint in the late 1990s to help newspapers guard against swings in the price of paper, their largest cost outside payroll. In a swap, Enron and the company agree on a set newsprint volume at a set price over a given time period.
Newspaper companies lately have had an incentive to find ways out of their contracts: Since prices have fallen below the agreed-on price in many cases, newspapers were likely to owe money to Enron.
As for plant life, Enron continues to seek buyers for its Garden State Paper Co. in Garfield, N.J., which closed and filed for bankruptcy protection in December. It also is expected to sell its Canadian mill assets, despite Enron’s statements to the contrary. Speculation has it that Garden State will not reopen, which would take 234,000 short tons out of annual production and could have the effect of propping up paper prices overall. Newsprint prices fell about 16.5% last year — to $505 a metric ton from $605 — perhaps the recession’s one silver lining for publishers.