The McClatchy Co. has renegotiated its bank loans in a deal that provides more financial flexibility for the owner of The Bee but forces McClatchy to pay higher interest, the company announced today.
The agreement also scales back the amount Sacramento-based McClatchy can borrow. It could also prohibit McClatchy from paying any shareholder dividends under certain circumstances, but that wouldn't take effect until next spring.
The new agreement is a function of a slide in McClatchy's revenue and profitability, a trend that's snared the entire newspaper industry. McClatchy carries the additional burden of about $2 billion in debt from its takeover of Knight Ridder Inc. That includes $1.175 billion in bank loans and lines of credit.
While the company says it's in no danger of defaulting or missing a debt payment, McClatchy was seeking greater latitude from its lenders. "The impact of the current environment on our cash flows necessitated taking the initiative," Chief Financial Officer Pat Talamantes said in a press release.
The Wall Street Journal flashed a headline on its Web site this afternoon saying the agreement will keep McClatchy "from defaulting on its debt." But McClatchy Treasurer Elaine Lintecum said the headline was wrong. "We were not defaulting," she said. The Journal took down the headline after McClatchy complained.
The deal raises the ceiling on McClatchy's allowable "leverage ratio," a figure that compares its profitability with its debt burden. The ratio fluctuates with profitability; as profits fall, the ratio goes up. McClatchy was below the maximum allowed under its loan agreements, but the new deal gives it more headroom.
McClatchy will pay a price for that headroom. The interest it pays on bank debt will immediately jump 0.25 percentage points. That'll cost about $2.8 million a year, said Treasurer Elaine Lintecum.
If the company's leverage ratio climbs above a certain point, the interest rate will go even higher, even if the company doesn't bump against that ceiling, she said.
McClatchy could wind up paying about $11 million in additional interest expenses, Lintecum said.
Last year the company paid $150 million in interest on its bank and bond debt.
In addition, McClatchy's line of credit has been cut by $25 million, to $600 million. Lintecum said the company can operate comfortably with the reduced line.
The deal also limits McClatchy's ability to pay dividends. For the next six months, dividend payments can't exceed $16 million, Lintecum said. That's not a problem for now, seeing as how McClatchy recently cut its dividend in half, to about $15 million every six months.
But if the leverage ratio shoots up beyond a certain point, the company would be prohibited from paying dividends altogether, she said.
McClatchy's stock closed at $4.50 a share, up 25 cents, on the New York Stock Exchange. The market closed before the agreement was announced. The stock rose in after-hours trading to $5.
Call The Bee's Dale Kasler, (916) 321-1066.
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