Seattle Times Co. struggles with its debt

When the Seattle Times Co. announced Nov. 12 that it had signed an agreement to sell its Blethen Maine newspaper chain to an investor group, Maine Media Investments, sighs of relief could be heard on both coasts. Blethen Maine’s debt is dragging down the Times Co.’s entire operation, and the Maine group, which includes the Portland Press Herald, the state’s largest newspaper, and two smaller dailies, continues to hemorrhage cash.

Another recent piece of Seattle Times Co. financial news raises cautionary flags about the viability of the Maine deal and the Times company's overall financial future. In its quarterly federal securities filing Nov. 7, McClatchy Co., which owns 49.5 percent of the Times Co., said it was continuing to write down the value of its stake. McClatchy’s latest valuation puts its Times Co. share at just $7.9 million at the end of the September reporting period. That’s about 6 percent of the $120 million value McClatchy put on its share of the Times Co. two years ago when it bought out the previous owner, Knight Ridder.

McClatchy has been steadily devaluing its shares of the Times Co., according to the Sacramento-based media giant’s quarterly filings with the Securities and Exchange Commission. (The Times Co., which is privately held, doesn’t disclose its financial data.) The figures point to a potentially stunning drop in the value of the Seattle Times Co., possibly one of the worst performers in a troubled newspaper industry. Consider that four years ago newspaper broker Dirks, Van Essen & Murray — the same broker engineering the current Blethen Maine sale — put a back-of-the-envelope street value on the Times Co. of $900 million, if the company’s majority owners, the Blethen family, decided to sell. The Blethens, then locked in a nose-to-nose fight with Hearst, owner of The Post-Intelligencer, had no intention of selling. Back then, the estimate indicated that in asset terms, at least, the Blethens were flush.

McClatchy's minority stake gives it virtually no say over Times Co. decisions, which are controlled by the Blethens. That substantially lowers the street value of McClatchy’s stake, compared to the Blethens’ 50.5 percent share of the company. Both McClatchy and Times Co. officials say that attempting to estimate the worth of the Blethens' share of the Times Co. can’t be done by extrapolating from McClatchy’s side of the ledger. Still, if the McClatchy share has dropped 94 percent in the past two years, it's a fair assumption that the Blethens' share is also down sharply.

The Times Co. owns a considerable pile of hard assets, including daily newspapers in Seattle, Yakima, and Walla Walla, Rotary Offset Press in Kent (which prints, among other things, the Northwest edition of The New York Times), and 10 acres of real estate in the South Lake Union neighborhood. Blethen Maine’s real estate is assessed on the public rolls at about $30 million, according to union officials in Maine.

Lacking real financial figures, it's not known how long the Blethen family can (or will want to) continue to ride the downward trajectory. Frank Blethen has said in the past that the family would consider selling its Times Co. stake if financial pressures become unbearable. Times' staffers say the company's future has become a considerable distraction in the paper's newsroom.

Times Co. officials have said in federal court affidavits that the company faces default on Times Co. loans if the Blethen Maine chain can’t be sold quickly. The company’s debt-holders have already forced two real estate sales during previous loan restructurings and are pressing the Times to sell half its valuable South Lake Union real estate to cover more of its outstanding debt, despite its being a bad time to fetch a good price for commercial real estate.

It's also a terrible time to get financing for these purchases. That may explain why the Times Co. announced its signing with MMI but omitted two key elements: a sale price and any explanation of how the prospective buyers are planning to finance the deal. According to a Portland Press Herald story, Richard Connor, the Wilkes-Barre, Pa., publisher who heads MMI, was still searching for financial backers after the announcement. That could be tough, since Connor must find someone willing to put up cash for a small newspaper group in a stagnant market in an imploding industry. While the Maine papers' major union, the Portland Newspaper Guild, has encouraged Connor, offering tradeoffs on the union’s four-year contract in exchange for MMI board seats, union officials told Crosscut they don’t plan to put any cash into the deal. The purchasers might also try to sell off the real estate quickly as a way to help finance the acquisition.

Selling Blethen Maine would cut the Blethen's debt load, but the Times Co. will still have to scramble to pay down loans that by some estimates total well over $100 million. Meanwhile, the Times Co. here at home has fallen back on the painful route of cutting staff. The most recent round affected 150 Seattle Times staffers, and some in the paper report being told to expect another round of cuts in February.