The bad news for Gannett, Other Publishers Continues

A recent analysis by S&P Global Market Intelligence found that the beleaguered newspaper publishing sector faces elevated odds of a default because of the economic damage caused by the coronavirus pandemic. 

According to the report, Gannett, the biggest U.S. newspaper publisher, has a “one-year market signal probability of default” of 38.2 percent. The score of the owner of USA Today is down from an April 7 high of 59.9 percent. Before the health crisis began in March, the Virginia company’s rating was in the low to mid-20 percent range, according to S&P.

Liquidity is a concern for Gannett investors given the company’s high debt level and falling advertising revenue exacerbated by the worst health crisis in more than a century.

“In addition, Gannett and all publishers will find it increasingly difficult to collect on some first-quarter-run advertising payments; many advertisers are on life support themselves, unable or unwilling to pay their bills,” Media analyst Ken Doctor wrote last month. “This pain coincides, ironically enough, with perhaps the most intense period of readership — and appreciation — by local news audiences in recent memory. But the irony has faded quickly as publishers, their employees, and soon their readers confront the resulting ratcheting down of the local news business.”

New Media Investment Group acquired Gannett for $1.2 billion in November 2019 and combined it with its affiliate GateHouse Media. Since New Media wasn’t able to get financing for the deal from banks, the company had to turn to private equity giant Apollo Capital Management for a five-year, senior secured term loan facility.

Apollo is charging Gannett a high-interest nosebleed rate of 11.5 percent. A $125 million payment is due in June, followed by $50 million payments in the third and fourth quarters.

The publisher expects cost-saving measures including layoffs and furloughs, significant pay cuts for senior management will yield savings of between $100 million and $125 million. It also reduced capital expenditures by 20 percent for the remainder of 2020 and suspended its quarterly dividend.  

Gannett CEO Michael Reed has said he is “highly confident” the company will meet its obligations since it has $200 million in cash and expects to earn $50 million in real estate sales in the second quarter.

“It’s so very hard today to know what next year will look like,” Reed said. “However, we have a great relationship and a very open dialogue with our lenders, which gives us comfort that we can deal with the unknown, the uncertainty and the unforeseen, should the need arise.”