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.
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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).
Amazon Canada: https://www.amazon.ca/dp/B013VKEXV2
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