Lee Enterprises Reworks Loan Agreements

By: Mark Fitzgerald Lee Enterprises Thursday said new agreements with its lenders cut the size and timing of payments on its $1.1 billion bank credit agreement and $306 million of debt (related to its 2005 acquisition of Pulitzer Inc.) that was coming due in April.

Lee's new agreements increase the cost of borrowing and pledge virtually all its physical and intangible assets as security -- but the Davenport, Iowa-based community newspaper publisher said they also ensure liquidity for continued operation at a time when a global credit crisis has converged with unprecedented harsh conditions for newspapers.

The agreements also bring to an end the last financial relationship between the parent of The St. Louis Post-Dispatch and the Newhouse family, whose old St. Louis Globe-Democrat was once its joint operating agreement (JOA) partner. For two decades after the Globe-Democrat folded, Pulitzer Inc. and Newhouse continued to share equally the profits and expenses of the remaining Post-Dispatch. When Pulitzer was being shaped up for sale, it bought out 95% of Newhouse's interest.

Lee said Thursday it had redeemed that 5% share, and a final value of the stake would be determined sometime between 2013 and 2015.

"The agreements extend the lowered balance of Pulitzer Notes debt on reasonable terms, restructure our larger bank debt, and favorably resolve the minority interest situation in St. Louis," Lee CFO and Treasurer Carl Schmidt said in a statement. "As a result of these actions, we have significantly improved our liquidity for the foreseeable future,"

The most pressing obligation going into the negotiations with lenders -- which went past even an extension granted by the banks -- was the $306 million in the so-called Pulitzer Notes coming due April 11.

That principal payment was reduced to $120 million, which Lee said it paid on Thursday using a portion of its restricted cash, which totaled $129.8 million as of Dec. 28.

Lee said the remaining debt balance of $186 million was refinanced by the lenders until April 28, 2012.

Beginning in June, Lee will pay principal payments of $4.5 million. Interest on the debt was increased to 9.05% from 8.05% until April 28, 2010. After that, the interest rate will increase 0.5% every year.

Lee also granted the lenders a "security interest in substantially all tangible and intangible assets of Pulitzer and its subsidiaries."

Changes to the $1.1 billion bank credit agreement make it, essentially, a balloon loan.

Payments coming due this year and until mid-2013 were reduced by more than half. But the payment at maturity increases to $502.5 million from just $83.1.

Financial details such as exact payment amounts, and covenants on leverage and interest coverage, are detailed at E&P's business-oriented
Fitz & Jen blog.