Morris Communications has amended its senior loan agreement, extending credit for the parent company, which owns radio, outdoor and other media properties, even if its newspaper unit, Morris Publishing, defaults on its public bonds. That’s exactly what happened on February 1st as Morris Publishing failed to make a $9.7 million interest payment. Not surprisingly, Standard & Poors then cut its rating for Morris Publishing.
The reworked agreement with the consortium of banks led by JP Morgan Chase reduces the previous revolver of $100 million to $70 million. The company said $50 million was outstanding on the revolving loan as of January 28th. That’s in addition to $83.25 million outstanding under a term loan.
Should Morris Publishing default on an interest payment to subordinated creditors, which is exactly what happed on February 1st, the banks have waived that as a condition of default under the senior loan agreement until March 3rd. In addition, “The Amendment waives until April 11, 2009 any default that may exist from Morris Publishing’s failure to cause to be filed continuation statements as may be necessary to maintain perfection of security interests in assets of some of the Subsidiary Guarantors,” Morris Publishing said in an SEC filing.
There is, of course, a price to be paid for these waivers. “The Amendment provides for an immediate increase of the variable interest rate under the Credit Agreement (previously scheduled for April 1, 2009) of 0.500%.”
Following the missed payment on the $278.5 million of 7% Senior Subordinated Notes due 2013, S&P cut its corporate credit rating on Morris Publishing from CCC to D. S&P said it considered a default to have occurred, even though there is a 30-day grace period, since the borrower is under financial stress. “We believe the company remains current on interest and principal payments due on the senior secured credit facility,” S&P said, noting the waivers granted by the senior lenders.
RBR/TVBR observation: As we reported previously, Morris Communications already faced a deadline to have a major divestiture deal in place by May 30th, so all of its debt holders have been aware of the necessity of reworking the company’s capital structure. The subordinated debt holders of Morris Publishing don’t have much choice but to wait and see how this plays out.