The one-time TV group owner is facing tough going for its remaining business – newspapers. Lee Enterprises struck a new credit agreement with its lenders which requires it to halt dividend payments to shareholders until it improves its balance sheet.
The Davenport, IA-based company sold its eight television stations to Emmis Communications for $559.5 million in 2000. Back then Lee’s stock traded in the $30s and peaked in 2004 just shy of $50. Lately it’s been below $3.
A dividend that totaled 76-cents per year, a hefty 26% yield – until last week. No doubt Wall Street expected hat Lee would not be able to maintain that payout. Citing “the extraordinary credit crisis and economic downturn,” Lee said it had negotiated a new deal with its lenders, setting new leverage requirements and reducing a revolving credit facility from $450 million to $375 million, of which $207 million was drawn. Another unused borrowing facility of $500 million was eliminated. And the new agreement with the lenders says Lee can’t pay a dividend to shareholders or buy back stock until its total leverage is back down to less than 4.5 times EBITDA. The ratio will be allowed to go as high as 6.75 times for the first three quarters of 2009.
“While we expect to be in compliance with our leverage ratio requirement at the end of our 2008 fiscal year in September, the credit agreement included a reduction in the ratio beginning in the December 2008 quarter. Accordingly, given the uncertainty of the current economic environment, we and our lenders believed certain adjustments were appropriate at the present time. It is encouraging that even in a tumultuous credit environment, such amendments can be obtained. Since our acquisition of Pulitzer Inc. in June 2005, we have repaid $463 million of debt and reduced net debt by an even larger $486 million, and these changes, coupled with our ongoing, across-the-board initiatives to reduce costs, should enhance Lee’s near-term operating flexibility, while still providing necessary liquidity,” said CFO Carl Schmidt.
“Like others in our industry, we have taken these actions as a result of some of the worst economic conditions in our lifetimes. The continuing housing and credit turmoil, coupled with rising unemployment and tight consumer spending, have inflicted a prolonged toll on advertising revenue and earnings. We remain confident that Lee will emerge strong when the economy improves, but current trends indicate a need for this additional flexibility in meeting our debt obligations. We regret that this additional flexibility comes at the cost of suspending our dividend. The suspension will save $34 million per year, which will be used to reduce debt, as will substantially all cash flows of the business. While debt reduction ultimately benefits stockholders, we look forward to the time when we can reinstate an appropriate dividend,” said CEO Mary Junck.
Lee Enterprises owns 49 daily newspapers, primarily in medium markets, has joint interests in four others and owns more than 300 weekly newspapers and specialty publications in 23 states.