Sunday, 10 April 2016

Postmedia - Debt Restructuring or Death Rattle?

Postmedia - Debt Restructuring or Death Rattle?
The Globe and Mail Report on Business reported this week (Thursday, April 7, 2016 - "End of Postmedia’s debt ‘noose’ in sight"), that Postmedia is likely to restructure its debt very soon. The market value of its bonds has fallen from 71 cents on the dollar to 14 cents on the dollar since January. That’s a signal that the market is assuming that a looming debt restructuring will force several bondholders to take huge write-downs, or worse, get their bonds converted to a worthless stock (i.e. Postmedia shares).

As Paul Tepsich of High Rock Capital Management is quoted saying in the article, “this bond will be restructured and become new equity, so the existing, current equity holders have been annihilated.” The hope is that the restructuring will give the company a longer survival time, and possibly save the business.
Which seems unlikely to me, though I’m no expert. It looks like the debt holders who have first priority are preparing to extract what value they can from the company, and the devil take the hindmost. When all is said and done, it looks like debt holders further down the list will be get next to nothing, as will stockholders. According to Peter Adu, at Moody’s “The equity is in my mind not worth anything because even the assets the company has, what we value it, is not enough to cover the debt.”  By the way, the stock is trading at 8 cents, right now.

Some observers think the company can become viable again, if they jettison the debt, though the overall business model is not improving with time; rather, it’s getting worse. Print advertising revenue continues to decline (down 18.3% year over year, in the first quarter), as does circulation (down 8%) and digital revenue (down 4.2%). Meanwhile, interest on its debt actually increased 6.6%. It looks like an impossible situation.
Those figures were from a follow-up story in G&M ROB, the next day (“Postmedia to review options as Golden Tree seeks an exit”). That article also stated that the Golden Tree rep (one of the biggest debtors) stepped away from the Postmedia Board. That’s an ominous sign.
As an example of how this impinges on journalistic quality, I noted that my local Postmedia paper had a story about the Saskatchewan election in the Tuesday morning edition, which had clearly been written before any votes had actually been counted. They declared the winner, without so much as a mention of the actual election results, obviously forecasting the result from polls, without bothering to wait for results. In this case it was correct, but it is pretty shoddy journalism to announce reality before it actually happens. But, it’s the sort of thing you do, when you have to cut back newsroom staff to the bone.
So, how much time is left? Who knows, but I suspect not very much. Will other papers like the Globe and Mail go through the same process? Possibly, but Postmedia’s management was uniquely bad, and has been so for a long time, so it is not inevitable that the Globe and Mail will follow suit. I just hope that something decent, in the way of a local paper, arises from the ashes of Postmedia.

Speaking of taking a hike, Mr. Godfrey might want to consider the Juan de Fuca Marine Trail.  But, first he should study the trail with the help of "A Walk on the Juan de Fuca Marine Trail", available on Amazon for only 99 cents (that's 12.375 shares, when converted to Postmedia currency).

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