The thesis of my original newspaper crash post was that an industry already crippled by the Internet and ideological bias could be put under by the economic crunch, in particular by the need to roll over debt in a hostile credit market. I'm not the only one noticing.
Henry Blodgett points out that the New York Times will need to roll over nearly $400m in debt next May. They have only $46m cash on hand, and are in negative cash flow. They do have a $366m credit line nominally available, but as Blodgett points out:
" What is a "credit line"? It is a promise, on paper, that a bank will lend NYTCO money when it wants it. This promise was made several years ago, when the New York Times and the rest of the newspaper industry were undefeated heavyweight fighters in perfect physical shape.... Doesn't the bank that signed that credit line have to give NYTCO the money? Not necessarily. The bank is contractually obligated to give NYTCO the money, but some contracts, obviously, are barely worth the paper they're printed on. Given the current circumstances, if we were that bank, and we were as strapped and scared as most banks are these days, we would certainly be reading the fine print to see what sort of "material adverse change" clauses the contract might include. "
How about the commercial paper markets? If the NYT is one of the more presentable newspaper companies out there, is there an out? Blodgett again:
"The reason the company has drawn down its first short-term credit line is that it got shut out of the commercial paper market."
This is exactly the scenario I've been foreseeing. The Times is going to end up with a choice between accepting short term money on adverse terms, much as happened to McClatchy, or being forced to sell assets such as the Red Sox or Boston Globe in a buyer's market. Neither will save the Times in the long run if its core business remains a cash sink, not generator.
There's more interesting commentary at Scholars and Rogues. Hat tip to Q and O.
When the lights go out at the New York Times...