NYT Bosses Explain $1 Billion Debt To Staffers (Memo)

arthursulzberger tbi

New York Times Company (NYT) staffers got a memo in their inboxes this afternoon from chairman Arthur Sulzberger and CEO Janet Robinson titled “On the Record . . . From Arthur + Janet, Vol. 2 The Story of Our Debt.”

The memo observes that the NYT has done enough financial engineering in the last year to avoid immediate bankruptcy–which, in fact, it has. 

As we explained in this recent financial update, however, the company will still likely require major cost cuts in the next couple of years, and it’s long-term survival strategy is not yet clear.

The Awl obtained a copy of the memo.  Here’s yours:

On the Record . . . From Arthur + Janet

Vol. 2 The Story of Our Debt

July 15, 2009

To Our Colleagues,

As many of you read, yesterday we announced the sale of WQXR, “The Radio Station of The New York Times.” This is another step in the realignment of our portfolio of properties and our initiative to reduce our debt.

Over the past six months or so, one question that we have heard time and time again from employees and others is: “What is the state of the Company’s debt?” Given that and the news about WQXR, we thought it would be worthwhile to discuss it with you today.

The Company carries approximately $1 billion in debt but of that amount only about $45 million matures before 2011, and we expect to repay that in November with cash flow from operations and our revolving credit agreement. The majority of our debt isn’t due until more than five years from now – in 2015. As a recent article in AdAge (http://adage.com/mediaworks/article?article_id=137628) asked, “But can it [the Times Company] last through 2011? As it turns out, we think the answer is yes, and then some.”

We couldn’t agree more. Let us walk you through the recent steps that give us such confidence.

At the end of 2008, we had approximately $1.1 billion in debt outstanding. That included debt under two revolving credit agreements. These are agreements with banks that allowed us to borrow up to $400 million under each agreement, or $800 million in total, whenever we needed it. On an ongoing basis, we repay what we borrow as cash comes in and the amount we can borrow is then replenished. Revolving credit agreements are commonly used by companies to manage their day-to-day cash requirements.

One of these agreements expired in May 2009. The other agreement will expire in June 2011.

At the end of last year, we had borrowed about $400 million under these two agreements. We also had approximately $100 million in bonds due to be paid in November 2009 and another $250 million due in March 2010.

Knowing that this debt was coming due, last fall we started to explore a transaction with Carlos Slim, one of our largest shareholders. In January we arranged for a loan for $250 million due in 2015 with Banco Inbursa and Inmobiliaria Carso, which are part of Mr. Slim’s holdings.

Both our Board of Directors and our outside financial advisors supported this transaction. With the proceeds from it, we paid off the borrowings under our May 2009 agreement, which then expired. We also repurchased roughly half of the $100 million in bonds due in November, which leaves about $45 million that we plan to repay with cash flow from operations and our revolving credit agreement.
We are paying an interest rate of 14% on the Inbursa debt. Yes, it’s a high rate, but given the state of our economy, our industry and the credit markets at the time we did the transaction, we believe it’s both fair and financially sound.

The transaction also includes warrants, which are like options, and give Mr. Slim the right to purchase 15.9 million Class A shares at approximately $6.36 a share. He has not asked for nor been offered a Board seat and does not have a history of activism in the companies in which he invests. This transaction in no way changes the control of the Company since that continues to reside in the Class B shares held by the Ochs-Sulzberger Trust.

After we completed the Inbursa transaction, we did a sale-leaseback of the majority of the space we own in our headquarters building. We sold this space to W. P. Carey and, in turn, they gave us $225 million. We simultaneously leased back the space and pay them rent. At the end of 10 years, we can buy back the space we sold them for approximately $250 million. With the proceeds from this transaction and other funds, we paid off all of the $250 million in bonds due in March 2010.

Going forward, we plan to use the proceeds from divestitures, such as WQXR and the potential sale of our interest in the Boston Red Sox, to bring our debt level down even more. This is what we did in 2007 when we sold our Broadcast Media Group.

We have been pro-active and disciplined in addressing our long-term debt obligations. So, again, the short answer to the question on the state of our debt is that we strongly believe we have the financial strength and flexibility to manage through this difficult time.

We hope all of this is helpful in better understanding our finances. You can find more information about the Company in its annual and other reports at www.nytco.com.

If you have any questions on this or other issues, please send us an e-mail at: [email protected]

Arthur & Janet

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