Postmedia deal puts chain on solid footing as debt slashed
Plan will cut interest payments by $50M and extend notes by four years
Postmedia Network Inc., has proposed a recapitalization plan that would reduce its total debt obligation by about $307 million, putting the country’s largest newspaper publisher on sounder financial footing.
The plan, announced Thursday, would extend the maturity date on Postmedia’s first-lien notes — 80 per cent of which are owned by Richmond Hill, Ont.-based Canso Investment Counsel Ltd. — by four years to July 2021, and reduce the amount outstanding to $225 million with a cash repayment of $78 million at par.
For Postmedia’s second-lien notes, the deal would write off US$268 million in debt by exchanging them for shares, turning those creditors into the company’s majority shareholders. New Yorkbased investment firms GoldenTree Asset Management LP and Riverpark Advisors LLC, as well as Berlin-based firm Allianz SE, are among the current second-lien debt-holders.
The proposed deal would also bring in $110 million of new capital invested in the form of U.S. dollar denominated second-lien notes, which will come due in July 2023.
The plan would provide Postmedia with some breathing room amid financial turmoil for the newspaper business in general as print advertising revenue declines.
“This will result in a stronger company with reduced indebtedness,” CEO Paul Godfrey said. “We’ve got new money being poured into this business. There’s a sense of confidence. This gives us a lot of hope for the future.”
In April, the company announced it would undertake a review to consider asset sales, as well as debt and equity restructuring, after it incurred losses of $225.1 million in the second quarter of the 2016 fiscal year. On Thursday, Postmedia reported a loss of $23.7 million in the three months ending May 31. The newspaper publisher currently owes about $650 million to its creditors — half of that in U.S. dollars — and has faced double-digit year-over-year declines in print advertising revenues.
The debt, under current arrangements, must be paid or refinanced by July 2018, including a $313-million debt maturity in August 2017.
Godfrey said that meetings will take place in August to consider and vote on the plan of arrangement.
He said the company has the support of “more than 80 per cent of the first-lien noteholders and second-lien noteholders for the recapitalization transaction.” Godfrey said that approximately 75 per cent of Postmedia shareholders support the proposal.
If implemented, Postmedia said the transaction will see its annual cash interest expense reduced by approximately $50 million. On a conference call for investors, Godfrey said the ownership change that would result from the proposed debt for stock swap will not impact Postmedia’s ability to meet regulatory requirements limiting foreign ownership.
Godfrey said the new second-lien notes will allow the company to mitigate “the risk associated with the upcoming maturities” on its existing first- and second-lien debt. Among investors in the new second-lien notes is New Jersey-based Chatham Asset Management. Godfrey confirmed that GoldenTree, which was reported to be shopping around its stake in Postmedia, is not involved in the purchase of new notes.
Both GoldenTree and Canso declined to comment.
“After a thorough review process, consultation with our advisers and careful consideration of all of our options, the special committee has recommended, and the board of directors has unanimously approved, the proposed recapitalization transaction,” said Rod Phillips, chair of Postmedia’s board in a statement.
“We believe that the recapitalization transaction allows Postmedia to move forward with a much stronger capital structure.”
In April 2015, Postmedia completed a $316-million deal to buy 173 Sun Media publications from Quebecor Media Inc, which it said would improve its financial strength and free cash flow.
In January of this year, Postmedia announced it was merging newsrooms in Vancouver, Calgary, Edmonton and Ottawa, and laid off 90 staff. Godfrey said that the company has no plans to sell or merge any more of its newspaper operations, although it has put real estate up for sale, which he says is worth $40 million to $50 million.
“We will have the ability to invest more,” said Godfrey. “It will probably be in the area of the digital world rather than the print world. But everything at this time is hypothetical: The crystal ball we have is not totally clear.”
Postmedia’s third-quarter revenue was $218.3 million, up 6.4 per cent from $205.1 million last year. However, excluding the impact of the Sun acquisition, revenue fell 12.9 per cent to $128.8 million.
The company also reported substantial decreases in print advertising revenue of $14.7 million (19.4 per cent) and print circulation revenue of $3.1 million (6.8 per cent), as well as a marginal decline in digital revenue of $0.5 million (2.4 per cent).