On Friday June 26, 2009, McClatchy (MNI) announced the expiration of its private exchange offer, which commenced on May 21, 2009. The company offered to exchange the Old Securities for up to $60 million in cash and up to $175 million of newly issued 15.75% Senior Notes due 2014.

The coupon rate has substantially increased from the range of 4.625%-7.150%. With the increase in coupon rate, the company’s interest coverage ratio which stood at 2.8x (EBITDA/Interest expense) will decline, and may fall below the covenanted minimum interest coverage ratio of 2.25x. The company’s leverage ratio (Debt/TTM EBITDA) was 5.9x at the end of 1Q09 up from 5.1x at the end of 2008, approaching recently-amended bank covenants of 6.25x.

After the expiration of the offer, according to Global Bondholder Services Corporation, the depositary for the Exchange Offer, $102.9 million in debt had been tendered. McClatchy received tenders from holders of approximately $3.8 million total principal amount of 2011 Notes, $11.1 million total principal amount of 2014 Notes, $53.4 million total principal amount of 2017 Notes, $10.8 million total principal amount of 2027 Debentures and $23.8 million total principal amount of 2029 Debentures.

The company will exchange the tendered notes for $3.4 million in cash, in the case of the 2011 and 2014 Notes, and $24.2 million in new notes. On Friday, MNI’s shares fell $0.22 and closed at $0.46 cents.

McClatchy like other newspaper companies – New York Times Co. (NYT), Washington Post Co. (WPO), Gannett Co. (GCI) and Journal Communications (JRN) is in the midst of a secular and cyclical slowdown in print advertising.

Circulation revenue for the company declined for the third consecutive year (down 16% in 2008) but showed a marginal increase of 0.9% in 1Q09, while ad revenue sank disproportionately as one-third of the company’s revenues come from the hard-hit California and Florida markets.

In order to survive, McClatchy is venturing into building its Internet operations, cutting costs, reducing its debt burden and has recently suspended its dividend. We maintain a Sell rating on the stock with a six-month target price of $0.50.

Read the full analyst report on “MNI”
Read the full analyst report on “JRN”
Read the full analyst report on “NYT”
Read the full analyst report on “WPO”
Read the full analyst report on “GCI”
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