Arkansas Newspapers Feel Pinch But Wehco, Stephens on Lookout for Buying Opportunities

by Mark Hengel  on Monday, Jul. 14, 2008 12:00 am  

A small debt produces a debtor; a large one, an enemy.

The Roman author who coined the phrase couldn't have known how well he was describing the crisis facing many newspaper companies more than 2,000 years later.

Two companies that own newspapers in Arkansas are facing debt that is an enemy. However, the state also has two companies that still have cash for possible expansion.

"When people talk about the crisis in the newspaper industry, it is not really a crisis in newspapers," Robert Picard, editor of The Journal of Media Business Studies, said. "It's a crisis of debt."

Picard, a media economist in Brookline, Mass., said the 1990s saw many newspaper companies borrowing against their market capitalization to finance the expansion of their newspaper chains.

The companies, he said, assumed the properties could continue producing margins that have traditionally been between 20 and 30 percent. However, profits at many papers have shrunk in the new millennium due to a combination of increased competition, rising costs and a slowdown in advertising.

Few newspapers are actually losing money, but the reduced profit margins have the highly leveraged companies struggling to service their debts.

Morris Communications of Augusta, Ga., purchased Conway's Log Cabin Democrat in the mid-1990s, during a period of acquisition. The company recently sold 14 papers to raise money to pay down debt, but even after the $85 million payment, Morris remains $418 million in the red, according to a Securities & Exchange Commission filing.

Moody's Investors Services, which rates bonds, now rates Morris' bonds as Caa1, low even for junk-bond status. The rating means that Moody's believes there is a 35.7 percent chance Morris will default on its loans, something Morris said in May was a possibility.

Last month, Morris announced that it would discontinue the company match on the employee 401(k) program. The move appears to be a cost-cutting measure to help raise money to further pay down the company's debt.

GateHouse Media of Fairport, N.Y., which owns eight papers in Arkansas, is also struggling with its debt. The company had total debt of $1.2 billion at the end of 2007, according to the company's annual report.

The company's Arkansas properties include daily newspapers in Arkadelphia, Helena, Hope and Stuttgart.



Please read our comments policy before commenting.