By: Mark Fitzgerald Squeezed by the global credit freeze and the newspaper industry's foundering revenue, Lee Enterprises said late Thursday it was suspending its dividend to help pay down its bank debt.
The Davenport, Iowa-based community newspaper publisher said the dividend suspension was part of a number of changes it had negotiated in its bank credit agreement, which loosens the allowable ratios of debt and interest to cash flow in the near term.
In a scenario that has played out in recent weeks at such newspaper companies as A.H. Belo and The McClatchy Co., Lee said the amount of its revolving credit facility is being reduced, another borrowing facility is going away, it has put up more "tangible and intangible assets" as security -- and the cost of borrowing is increasing.
Lee CFO and Treasurer Carl Schmidt said the company expects to be in compliance with its leverage ratio requirement is calculated for the end of September, but a tightening of that requirement was coming in December.
"Accordingly, given the uncertainty of the current economic environment, we and our lenders believed certain adjustments were appropriate at the present time," he said in an announcement released after markets closed. "It is encouraging that even in a tumultuous credit environment,
such amendments can be obtained."
Lee Chairman and CEO Mary Junck said suspending the dividend would free up $34 million annually to reduce debt. "Substantially all" cash flow from Lee newspapers and other properties will go to paying down debt, she added.
"Like others in our industry, we have taken these actions as a result of some of the worst economic conditions in our lifetimes," Junck said. "The continuing housing and credit turmoil, coupled with rising unemployment and tight consumer spending, have inflicted a prolonged toll on advertising revenue and earnings."
Schmidt noted that since the blockbuster acquisition of Pulitzer Inc. in June 2005, Lee has repaid $463 million of debt, and reduced net debt by $486 million.
Stock analyst Tom Corbett, who follows Lee for the Chicago research firm Morningstar, said the suspension of the entire dividend ?just speaks to the gravity of their overall financial situation that they were willing to cash in that chip to keep their creditors happy.?
Halting a dividend is not something companies take lightly, he added, because it is a sign to shareholders and investors that cash flows are under significant strain. ?Dividends are sacred cows, but when revenues decline and cash flows diminish, they quickly become sacrificial lambs,? he said Thursday.
The new agreement eases the total leverage ratio, which generally is the ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) to 6.5 to 1 5.0:1 for the rest of the year. The ratio will loosen further to 6.75 to 1 through September 2009, and then begin to decline through September of 2010 until it is 4.5 to 1.
Credit spreads are also increased under the agreement.
Details on the new agreement are at
Fitz & Jen blog
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