the news biz

For more than a decade, the McClatchy family has resolutely kept the newspaper company bearing its name afloat and independent despite a crushing debt load.

The tough financial hand McClatchy, owners of The State and other newspapers in the Carolinas, have been dealt will become even tougher next year.

McClatchy stock has lost almost all its value to investors. Its market capitalization (the number of shares multiplied by share price) sits at $69 million, lowest of the seven public newspaper companies.

At the same time, refinancing of the company’s $794 million debt earlier this year consolidated more lending control in the hands of a longtime creditor, the private Chatham Asset Management hedge fund.

Except for repeated rounds of newsroom layoffs, the financial squeeze has little impact on the hundreds of McClatchy journalists at its 30 papers. A recession could force family owners to consider bankruptcy.

McClatchy is valued at a fraction of the big public companies, led by The New York Times at $3.8 billion (55 times as much).

The $794 million total debt is more than 10 times McClatchy’s market capitalization. That is by far the worst debt-to-equity ratio among the group. Plus it is higher than the total debt of the much larger public newspaper companies.

McClatchy shares have been trading lately at a little under $9 a share. However, the company did a so-called “reverse stock split” in 2016. So 10 shares valued at $1.14 each would be exchanged for one share worth $11.40. On a comparative basis then, the stock, which once traded in the $70-plus range, is worth 90 cents a share.

Over the past decade, McClatchy has made huge progress in reducing debt it took on when it bought the larger Knight Ridder chain in 2006. From $2.6 billion in 2007, the debt burden is down to less than $1 billion. But to get there, the company has had to plow back a big share of earnings every quarter to interest payments and principal.

The current $794 million debt appears to be more manageable. But McClatchy has become a smaller company. The margin between revenues and expenses is thin.

Also, McClatchy lacks a non-news growth business like Gannett’s Reach Local digital marketing and ad placement subsidiary or Belo’s collection of Dallas ad agencies.

McClatchy CEO Craig Forman declined to be interviewed for this article. He is a former Wall Street Journal reporter turned tech investor. He joined McClatchy’s board in 2013 and CEO in early 2017.

Forman has pursued a consistent strategy of picking up the pace of digital transformation. Vice President of News Tim Grieve aims to get every editor and reporter focus on stories that attract readers, shedding conventional news no one reads.

The new regime’s program has increased digital traffic and digital-only paid subscriptions to a modest 122,400, a little more than 4,000 per newspaper. With print revenue falling, this has yet to pay financially.

As a 30-year financial professional, I’ve learned that when investors are ready to invest, that’s the time to engage.

Rick Edmonds is a media business analyst for the Poynter Institute in St. Petersburg, FL.