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Lee Enterprises pushes debt payback to 2022; stock plummets

Globe Gazette, owned by Lee
Globe Gazette, owned by Lee

DAVENPORT – Lee Enterprises, Incorporated – the parent company of the Globe Gazette and other small newspapers – announced recently the refinancing of $800 million in debt that has crippled the company for years, extending debt payments all the way to 2019 and 2022.

News of the debt refinancing leaked out last month, and LEE stock has been punished on Wall Street by investors in the ensuing days, from a high last month of $5.20 to a low today of just $3.81 per share.

Lee head honcho Mary Junck called the long-term debt restructure “a substantial runway for continued aggressive deleveraging” that will allow Lee to “keep our full focus” on “our powerful print and digital products and huge audiences in attractive markets” like Mason City.

“This long-term financing significantly extends the average maturity of Lee’s debt to more than seven years and provides a substantial runway for continued aggressive deleveraging,” Junck continued. “It enables us to keep our full focus on our many initiatives to drive audiences, revenue and cash flow. The favorable terms are a result of Lee’s strong track record of stable cash flow and significant debt reduction, along with our powerful print and digital products and huge audiences in attractive markets” like Britt, Iowa.

Among the financial moves Lee made related to the $800 million debt refinance was a $250 million First Lien Term Loan; $400 million Senior Secured Notes (at an annual rate of 9.5%); and a $150 million Second Lien Term Loan with a generous stock option for each of those lenders (each lender received at closing on March 31 its pro rata share of warrants to purchase, in cash, an initial aggregate of 6,000,000 shares of Lee Common Stock, $0.01 par value, subject to adjustment, which will represent, when fully exercised, approximately 10.1% of shares currently outstanding on a fully diluted basis. The exercise price of the warrants is $4.19 per share.)

JPMorgan Securities LLC and Deutsche Bank Securities Inc. acted as joint lead arrangers for the financing.

Lee Enterprises filed bankruptcy in 2011 and re-emerged with nearly $1 billion in debt and has made announcement after announcement since then on new plans to re-work the debt.

Earlier this year, a national securities firm in New York announced that it was investigating Lee Enterprises for issuing 300,000 shares of Lee common stock. Faruqi & Faruqi, LLP, said in the announcement that the “issuance of the additional shares could have a substantial dilutive effect on the shares of Lee common stock.” Lee stock has struggled with compliance on Wall Street and was nearly de-listed in 2012.

Late last year, Lee announced that cost cutting was improving the company’s financial outlook, saying that compensation decreased 9.3%, with the average number of full-time equivalent employees down 8.4%. Newsprint and ink expense decreased 22.3%, primarily a result of a reduction in newsprint volume of 19.4%. Other operating expenses decreased 7.6%.

Last year, Lee proudly proclaimed that outsourcing its work was a success as it continues to “transform” its “business model”, which apparently includes fewer and fewer American men and women, as much of that work ended up being completed by people in the Philippines and India.

“We have outsourced ad production in 13 locations so far, resulting in faster turn-around time for advertisers, improved quality, less redundancy and lower cost,” the company said in a news release. “We expect continued significant savings from these steps.”

Just this year, in February, Lee announced its prospects were turning around due to an “aggressive sales culture” and a “meaningful headcount reduction”. Evidence of this headcount reduction has been seen in Mason City at the Globe Gazette, as a long-time employee in the newsroom was told this year to pack up and leave before being escorted out of the building.

One former LEE stock holder and ex-employee said today that “at this rate, there won’t be any local people left working at places like the Globe. I think they would rather hire foreigners to gather news and design ads. Actually, they might do a better job than some of the slugs they have now. And this debt, wow. Another 8 years, and the rate at over 9% for a big chunk of it. Ouch. Plus they issue millions of stock to the lenders, diluting the holding of current stock owners. I’m glad I sold all my LEE stock a long time ago.”

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