You say bond deal, I say salvation

The McClatchy Co., owner of the News & Observer, is no longer on a death watch, having been upgraded to the status of “profoundly troubled” from “circling the drain” (my categories, by the way, not official ones). The result of that slight improvement in economic health is that the company’s financial statements don’t get the same scrutiny as they did just a year ago. At least by me.

That’s a long way of saying that I have only now gotten around to reading the particulars of McClatchy’s $875 million bond deal, which was announced earlier this month. But before I share the details, a quick summary of recent history is in order: Last year, McClatchy sought to reduce its debt burden — then at $2 billion — by seeking a bond swap, in which holders of $1.15 billion in bonds would trade them in for new ones with a higher interest rate. Sound like a good deal? Well, it wasn’t, for reasons I explained in this column for Business North Carolina magazine. (Basically, McClatchy offered as little as 18 cents on the dollar for the outstanding notes, and told bondholders that if they didn’t accept they’d be moved to the back of the line for reimbursement if the company went into bankruptcy — as seemed possible at the time.) Despite that strong-arm tactic, the overwhelming majority of bondholders declined the offer.

Then a funny thing happened. McClatchy’s financial fortunes improved, and bankruptcy no longer seemed likely. Problem was, a big bond payment was coming due in 2011 and McClatchy still didn’t have the cash to cover it. Even worse, it couldn’t try the settle-for-pennies threat again because if nobody caved in back when bankruptcy seemed possible, they sure weren’t going to cave in now. So McClatchy came up with a new scheme plan a few weeks ago: It would issue $875 million in new bonds, and use the money to not only pay off the debt due in 2011, but also pay back $567 million owed to the bank.

The new bonds come due in 2017, and they do nothing to relieve McClatchy’s debt obligation, which is still stuck at $1.9 billion. What that means, of course, is that the company simply kicked the problem down the road. But there was one significant fact buried deep in McClatchy’s announcement of the bond deal:

The notes are senior obligations of McClatchy that are guaranteed by each of McClatchy’s subsidiaries that guarantee indebtedness under McClatchy’s credit agreement.  The notes and guarantees are secured by a first-priority lien on certain of McClatchy’s and the subsidiary guarantors’ assets, and will rank pari passu with liens granted under McClatchy’s credit agreement.

Confused? Hell, who but a financial geek wouldn’t be? But what that paragraph says is that the new bonds, unlike the previous ones, are backed by McClatchy’s assets. Bondholders will be on equal footing with the banks. (That’s what “pari passu” means.) And one of those assets, of course, is the News & Observer.

Here’s my advice: Pray for a default, because that’s about the only way anybody is ever going to pry the N&O from McClatchy’s life-sucking grip.

6 Responses to “You say bond deal, I say salvation”

  1. Locomotive Breath Says:

    And the fish that’s dead but doesn’t know it yet, continues to wriggle and squirm but can’t get off the hook.

  2. Locomotive Breath Says:

    By way of example, check out this coverage

    “Durham woman”? Buried in the article “Crystal Gayle Mangum”? Where have I heard that name before. Can’t quite place it. Linda Williams is still on the job, I see.

  3. NotThatImportant Says:

    I didn’t realize the second sentence and second paragraph of an article is considered “buried.” I guess the cutline of the photo, which also includes her name in “buried” under the photo. What exactly is your point loco?

  4. Locomotive Breath Says:

    Just like the Soviets, the N&O has gone back and edited history. The original article has disappeared and a new one has taken its place at the exact same link. You wonder why no one trusts them?

    But the internet never forgets. Here’s the original.
    Durham woman charged with arson
    Raleigh News and Observer | February 18, 2010 | Staff

    Police filed several charges against a Durham woman in connection with a fire at 2220 Lincoln St. on Wednesday afternoon.

    Crystal Gale Mangum, 31, and her boyfriend, Milton Walker, had an altercation, according to a police news release.

    Mangum set clothing on fire in the bathroom tub, police reported. Three children and the two adults were evacuated from the apartment.

    Police charged Mangum with five counts of arson, simple assault; identity theft; communicating threats; damage to property; resisting, delay and obstruction; and three counts of child endangerment.

    Anyone with information should contact Officer H. Thompson at 560-4415 Ext. 29297 or Crime Stoppers at 683-1200. The incident is still under investigation,

  5. Locomotive Breath Says:

    BTW, they were soooo sensitive and would not name Mangum until her name had appeared in every other media outlet, yet they’re just fine reprinting the names of the falsely accused and innocent lacrosse players so there’s yet another search result when someone googles them.

  6. Locomotive Breath Says:

    In fact, the N&O article is being edited in real time with nary a trace of the prior articles. The headline now features the murder charge and has replaced the flattering photo of her at her book signing with her mug shot.

    Interesting how the N&O thinks that public records should be maintained indefinitely but they are in the business of denying they ever published certain articles and removing them from the record.