Editor's note: The Seattle Times has consistently complained about our coverage of it, asserting bias on the reporter's part, and also declined to comment in any detail. For this story, associate editor Joe Copeland sought the company's comment on financial details; the Times' spokeswoman, Jill Mackie, declined to set up an interview or take questions.
One of the perks of being the last newspaper in a one-paper town is that The Seattle Times gets to present the news as it sees fit. On Feb. 5, the Times and its majority owners, the Blethen family, took the unusual step of reporting on themselves with a full-age ad by the Blethens that somewhat breathlessly announced the company had refinanced its debt and promised the family would remain at the Times'ê helm "for many years to come." A separate Times news story on the refinancing carried a more muted headline, noting that the deal secured "some breathing room" for the company in its effort to avoid bankruptcy.
But neither item provided much detail on how much breathing room the Times Co. has under its new financial arrangement. The company has been under pressure by its lenders, a bank consortium headed by Bank of New York Mellon, to pay down what's left of $231 million it borrowed a dozen years ago to purchase a small Maine newspaper chain and another $24 million loan in 2007 to pay off Hearst to settle a lawsuit over its joint operating agreement with the Post-Intelligencer.
Last June, the bankers forced the sale of the Maine papers at a steep loss and they have pressed the Times to unload its South Lake Union real estate to lower the debt still more. Times Co. Chief Executive Frank Blethen told his paper that as recently as this winter the company was considering a bankruptcy filing to fend off its creditors.
But with the refinance, the Blethens' ad declared, "The Seattle Times is here to stay."
Perhaps. But while the Times was publicly heralding its refinancing, other documents indicate the company is still some distance from being out of the financial woods.
According to its latest annual pension-fund reckoning, mailed to the Times' past and present employees recently, the company's pension plan is $56.2 million in debt, with $122.9 million in assets and $179.1 million in liabilities as of Sept. 30. The company's growing pension liability caused its minority owner, California-based McClatchy Co., to write down its 49.5 percent Times stake to zero at the start of last year. Three weeks ago, the Times pressed the Northwest Newspaper Guild, which represents about 400 employees at the paper, to approve an indefinite extension of a two-year freeze on the company'ês contributions to its employee pension plan. The Guild approved the extension four days before the refinancing announcement, a move that Times officials said would save the company about $14 million in pension payments after the freeze would have expired in October.
But while the union vote saved the Times from having to spend $14 million to service its contractual obligation to the pension fund, it doesn't erase the fund'ês $56.2 million shortfall. Under the federal Pension Protection Act of 2006, corporate pensions like the Times' plan must be 80 percent funded by 2011, and fully funded over the next seven years. Currently, the Times' pension fund is only 55 percent funded. That means the Times will have to channel a substantial amount of its near-term revenue toward meeting the federal pension rules while also paying off its bankers.
"The pension fund obligation is a claim on the company's potential cash flows," said Mike Simonton, managing director for media and entertainment at Fitch Ratings, a Chicago-based credit-rating concern. "It will make it difficult for them to pay on the bank debt."
According to documents filed with the King County Recorder's Office shortly before the refinancing announcement, the Times pledged most of its remaining real estate holdings as security for its new bank debt, including its downtown headquarters, a nearby office building, and its Bothell printing plant. The real estate was pledged to cover debt up to $71.6 million, the documents say, but does not include the Times' revolving credit line, whose size is unknown.
Taken together after the refinancing, the Times' bank debt and pension liability now total more than $127 million. Meanwhile, the paper has been saddled with a continuing drop in total revenue — down 25 percent last year, according to an internal company memo circulated Feb. 5 by Blethen and Times President Carolyn Kelly. The memo boasts that the Times offset its revenue plunge by trimming expenses an even heftier 27 percent last year, but industry experts expect newsprint prices to climb from their 2009 low, which will make it tough for the Times replicate that kind of cost-cutting this year.
All that may help explain why a union accountant who analyzed the Times' books last month painted a less optimistic picture of the company's finances than the Blethens did in their ad. Cost-cutting and some circulation gains from the P-I's demise have helped improve the Times' bottom line, Teamster accountant Doug Henderson wrote in a Jan. 13 internal memo to union officials. According to the memo, Henderson was briefed by Times' controller Cindy Gustafson and labor relations director Martin Hammond, and he reviewed the company's income summary statement for 2009.
Declining ad revenue continues to be "a difficult proposition" for the Times, Henderson wrote, with classified ads moving from the newspaper to online competitors. Some other advertisers hit by the declining economy, he said, have either shifted to electronic messaging, or simply stopped spending altogether.
While the Times accounting shows the company is moving toward a "near break-even position," Henderson's report also says, "The financial challenges that confront the company today will continue for the next several years."