By: Mark Fitzgerald Dallas-based American Community Newspapers (ACN) Inc. reported a $69.2 million second-quarter loss almost entirely because of a preliminary goodwill impairment charge -- and disclosed that it is in default of its loan agreements.
ACN said the loss, amounting to $4.73 a share, compared to net income of 13 cents a share in the year ago quarter.
The publisher of the Stillwater (Minn.) Gazette and 100 other print products in four states said the Q2 loss included an estimated $69.4 million non-cash goodwill impairment charge. Without the charge, preliminary net income was $200,000, or 1 cent a share.
ACN said its second-quarter revenue fell 14.4% from the year before, with ad revenue down 15.6%.
Internet advertising revenue was up 17.2% year-over-year in the quarter, and represented 2.9% of total revenue.
In a 10Q form filed with the Securities and Exchange Commission (SEC) Thursday, ACN disclosed that as of Aug. 13, it is in violation of the financial covenants under two of its credit facilities.
ACN's senior credit facility required ACN to hold its debt down to debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) of 6.5 to 1. In late June, the company said, its ratio was 7.33 to 1 on debt of $108.5 million, and trailing four quarters EBITDA of $14.8 million.
The subordinated credit facility had a looser limit of 8 to 1, but ACN blew past that as of June 29, with debt leverage of 9.68 to 1, based on consolidated total debt for the subordinated facility's purposes of $143.3 million and trailing four quarters EBITDA of $14.8 million.
The defaults also automatically triggered defaults in two interest rate swaps, ACN said.
"While we do not expect our lenders to immediately terminate either facility and/or demand immediate repayment of outstanding debt and payment of accrued interest, they would have the right to do so," ACN said in the SEC filing. "In such event, the Senior Lenders could seek to foreclose on their security interests in our assets and those of our subsidiaries. Alternatively, our lenders could take other actions, such as imposing a default interest rate that is 2% above the interest rate otherwise due under the respective facilities and, in the case of (certain lenders) restricting our access to additional revolving loan borrowings and letters of credit. Such actions would materially and negatively impact our liquidity, results of operations and financial condition."
ACN said it had hired Carl Marks Securities LLC to "provide financial advisory services, including assistance in negotiations with our lenders and the development and execution of a financial restructuring plan."
The company is exploring "alternatives for formulating a balance sheet restructuring plan," the company added.
Thinly traded ACN (AMEX: ANE) stock was trading at 15 cents a share just before the close of markets Thursday. It has traded in a 52-week range of 10 cents to $4.50.
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