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Freedom’s junk bond status

Thu, Mar 12, 2009

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Earlier this week, Moody’s made public a list of 283 corporations, private and public, which, the ratings firm said, are in danger of default.  The list of “bottom feeders” included a sizeable number of companies with Colorado connections, including both Freedom Communications, which owns the Gazette, and Denver Post owner Media News Group.

Judging from the ratings assigned to the company’s senior debt, both companies have their problems. Freedom’s paper is rated Caa1, while Media News merits only Caa3.  We’re talking junk bonds here, folks-stuff that pension funds can’t buy, and, if traded at all, will sell at a very deep discount from face value.

It’s no secret that Newspapers are in trouble these days.  But, as the editor of the trade journal Editor and Publisher said the other day, during an interview on the Rachel Maddow show, there’s another dirty little secret out there.

“Newspapers,” said Greg Mitchell, “are by and large still quite profitable.”

So what’s the problem?

The problem is that the chains that own most major dailies have gorged themselves on debt, assuming that newspaper cash flows would increase indefinitely.  Now, companies like Freedom, Media News Group, Tribune Companies & McClatchy are bleeding their properties dry, trying to preserve not their newspapers but the rickety, overleveraged parent companies that own them.  At newspapers like the LA Times, newsrooms have been reduced by 60 perfcent or more, meaning that the product has suffered correspondingly.

Like the upstream utilities holding companies of the 30′s, modern media titans are often in the business of looting and crippling the businesses that support them.  For some of them, Chapter 7 would be the best option-dismantling the parent company, and selling properties to individual, local owners who, free of massive debts and the necessity to fund corporate overlord, might be able to transform these troubled metro dailies into the vibrant, profitable and community-centered enterprises that they once were.

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