We’ve been waiting for the first major newspaper company to default on its debt. McClatchy (MNI) was a prime candidate. This week, however, the company persuaded its bondholders to relax their covenants on debt-to-cash flow, thus staving off bankruptcy for now.
(Somehow this doesn’t seem like a sustainable restructuring plan.)
WSJ: The publisher of the Sacramento Bee and Miami Herald said Friday its banks agreed to loosen restrictions on the company’s level of debt compared to cash flow, and its ratio of interest payments to cash flow.
Analysts had said McClatchy needed to secure the changes by Sept. 30, or the company risked a technical default on its debt. A default notice could trigger a bankruptcy-court filing.
The company continues faithfully to pay interest on its debt, though falling revenue means McClatchy has been tickling near covenants on its bank debt. The covenants currently limit McClatchy’s debt to five times its adjusted cash flow. The ratio was just under 4.5 times at the end of the second quarter. The ratio now moves to 6.25 through the fourth quarter, and then to 7 from the quarter ending March.
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