Editor and Publisher Magazine: Is Morris Publishing On the Way to Bankruptcy Court?

November 14, 2008
With Asset Sales Off The Table, Is Morris Publishing On The Way To Bankruptcy Court? S&P Thinks So.
Fitz: When Morris Publishing Group executives spoke with analysts on an earnings conference call earlier this week, they never quite said they were going to pursue and complete a big sale by the spring, as required in their amended credit agreement. So Friday, Standard & Poor's Ratings Services lowered the recovery rating on its subordinated debt to the lowest level possible, 6 -- a rating it says indicates "that lenders can expect negligible (0% to 10%) recovery in the event of a payment default." And it downgraded Morris' corporate CCC from CCC+, a rating on the lower end of the junk bond continuum.

S&P said it was disappointed Morris gave analysts no indication it was negotiating the sale of any assets. "Our ratings, therefore, do not incorporate the expectation that the company will consummate a transaction that will generate funds to repay the credit facility. We are concerned that the company may file for bankruptcy protection to reduce its debt outstanding," the report by credit analyst Liz Fairbanks said.

Later Friday, Morris -- publisher of 13 dailes including The Augusta (Geo.) Chronicle in its corporate hometown -- filed a 10Q with the SEC that pretty much removes any doubt that it does not intend to try to sell newspapers or its broadcast TV stations in this terrible market for media properties.

What Morris said, and what Standard & Poor's fears, below:

"Since it is unlikely that the company would be able to enter into such a (asset sale) transaction, the company will likely be dependent on the ability of its parent (Morris Communications) to enter into a transaction that would allow the company to amend or refinance the bank credit facilities," Morris Publishing said. Morris said its long-term debt stood at $423.9 million as of Sept. 30, down from $427.9 a year ago.

So is Morris looking at bankruptcy? Senior Vice President of Finance Craig Mitchell didn't return our phone call seeking comment, but Standard & Poor's paints a grim near-term future.

"The corporate credit rating downgrade reflects our concern that, even with the covenant relief provided in the most recent executed amendment, the company will be unable to sustain its current capital structure over the next several quarters," credit analyst Fairbanks said.

In 2009, S&P expects Morris revenue to be down by a percentage in the mid-teens -- and EBITDA (earnings before interest, taxes, depreciation, and amortization) will shrink by 30%. If Morris ends this year with an EBITDA of about $46 million, as S&P estimates, that means its debt-to-EBITDA ratio would be a quite-high 10 times. Even with the looser covenants of the amended credit agreement, Morris will be out of compliance by the quarter ending June 30, 2009.

Earler this week, Morris reported a third--quarter net loss of $163.2 million that included an impairment charge of $170.7 million that complete wrote off goodwill on its balance sheet.