No Furlough From Pain At Media General

By: Mark Fitzgerald Media General Inc. has experienced nearly every woe that can be visited on a media company.

It was on the bleeding-edge of the recession before there was a recession. Its ambitious expansion plans into television and consumer online sites, all to be integrated seamlessly with its Southern newspaper properties, left it with massive debt, just as Florida housing collapsed and the advertising market contracted. It was forced to fight a costly and distracting proxy war that it lost to a group that essentially lost interest in Media General and sold the bulk of their holdings. Its stock (NYSE: MEG) lost 92.45% of its value in 2008. And its quarterly reports increasingly included eye-popping impairment charges on the shrinking value of its newspapers and TV stations.

In its last quarterly report, Media General disclosed a stunning result: help-wanted classified plunged 60% from Q4 2007 -- when the Florida housing collapse was well under way, taking jobs with it.

So Media General has done it all in the cost-cutting department: layoffs, buyouts, suspensions of 401(k) retirement plans and stock dividends, and salary freezes. It just finished selling off the last of five television stations that could hardly be dismissed as "non-core assets."

The surprise wasn't that Media General ordered a mandatory furlough of 10 unpaid days -- two work weeks -- but that it was beat to the measure by Gannett, MediaNews Group, Landmark Communications and Lee Enterprises, which is leaving furloughs up to the discretion of individual publishers.

Cost savings, of course, are going to debt. And to its credit, Media General has been assiduous about paying down debt, cutting it from $898 million at the beginning of 2008 to $750 million by New Year's Eve.

But the continually contracting economy and the credit crunch squeezed Media General to the point it had to cry "Uncle" and negotiate looser loan requirements at the usual price of higher borrowing costs and smaller available credit.

Still, while Media General has some breathing room now, the squeeze is scheduled to come back starting next month -- and there is little "visibility," as the analysts like to say. Translation: For an unknown time ahead, there will continue to be a worrying uncertainty about when advertising will rebound.

At the time Media General renegotiated its loan agreement, the so-called "leverage ratio" -- the amount of debt compared to, more or less, EBITDA (earnings before interest, taxes, depreciation and amortization) -- was loosened to 6.25 to 1. But starting at the end of the first quarter, and continuing through the rest of the year, Media General will be required to either lighten its debt load or increase EBITDA so the ratio becomes a stricter 6 to 1. For most of 2010, the ratio tightens again to 5.75 to 1.

Violate those "covenants," and Media General would be in at least technical default and subject to consequences such as an accelerated payment schedule -- or even, conceivably, an order to pay up everything immediately.

Media General has some things going for it, though.

It has a family-dominated board through a class of super-voting stock that can never go to dissidents such as Harbinger Capital Partners, who successfully placed three members on the board in a proxy war last spring. As long as the Bryan family keeps the faith with newspapers, in whatever form the medium eventually takes, and the rest of the media business, Media General will not become another Tribune Co., taken over only to be wrecked.

Media General is well-diversified into digital media, and was ahead of the industry curve in integrating newspaper, broadcast and digital.

The showplace for that integration was once Tampa, and, yes, that particular market has inflicted the most financial pain on the company. But unless the Atlantic and the sunshine go away, it's a good bet that Tampa will again become a robust market.

Media General just has to make sure it has something left when the storm blows over and visibility returns.