Schadenfreude
The New York Times, scrambling to stay in business, has accepted a $250 million investment from Mexican billionaire Carlos Slim Helú:
A reader who is an expert in corporate finance writes:Under the terms of the deal, Mr. Slim, who already owns 6.9 percent of the Times Company, would invest $250 million in the form of six-year notes with warrants that are convertible into common shares, the company said in a statement. The notes also carry a 14 percent interest rate, with 11 percent paid in cash and 3 percent in additional bonds.
Apparently the New York Times Corp. has accepted an offer from Mexican billionaire Carlos Slim to put $250 million into the company. But, man...are the terms onerous!...It's a debenture carrying BOTH a 14% coupon --- junk bond territory ---- AND warrants for 18% of the company, the third largest share...exercisable at a DISCOUNT to Friday's closing price!!...the warrants are in the money NOW!....it gets worse...they cut their dividend in November by 75%...reducing the Sulzbergers' income dramatically...and the new $250 million probably isn't close to enough for their liquidity needs...so they will probably do a $225 million sale/leaseback of the Times office building!...in combination.....this is a CLASSIC instance of corporate desperation..."last chance finance"...richly deserved....
PAUL adds: John should be commended for not calling this post "Slim Pickings." I'm hardly an expert in corporate finance or the newspaper industry. But I know that the Times is a pillar of left-liberalism, so I'm skeptical that it will be permitted to disappear.
OUR READER adds:
To comment on this post, go here.Times notes are partially PIKs! I didn't see that detail until after I wrote you that post....but the option to pay up to 300 bpts of interest "in kind," with new bonds, essentially as a form of negative amortization, or capitalization of interest are further indicia of deep financial distress. PIK bonds were offered at the peak of the "junk bond" finance bubble in '88 - 89; CIT and GECC routinely offered them to small undercapitalized middle market borrowers (or used to)......not a good sign...it helps when there is a cash flow crunch by lowering interest payments....but at the obvious price of increasing future payments...YIKES!...almost usurious loan-sharking!...LOL!!
