$MNI $NYT notes from Will Thrower

This is probably still worth following. 2012 EBITDA was about 320m, plus another 40m of distributions from their online classified investments (still carried at cost using the equity method). They were able to refinance their 2017 11.5% notes with 2022 9% notes, which will save them 15m a year in interest costs. Digital revenues grew 15% to about 20% of total revenues.

I think this one is interesting because the debt could be completely covered by the value of their real estate, which they carry at cost and depreciate on the balance sheet. With a market cap of $210m, EBITDA of $360m, there is a lot of upside as they gradually pay down the debt and refinance at lower rates. It’s encouraging that there have been no major dilutive share issuances in the past 5 years, probably because the McClatchy family is still on the board. The debt is also probably a good deal if it’s trading below par.

Think about it this way… They could probably get $800m for their online classified investments, which people recognize as being a great business. Then they are down to $800m net debt vs. $320m EBITDA and real estate assets worth more than $1B. Then they would be able to refinance the 9% notes and bring their overall cost of debt from 7.9% down below 6% or so. Another 4 or 5 years of cash flows could then retire the debt completely, and equity investors are left with all the real estate and cash flows, probably worth $2B.

But I think it’s a way better strategy to hold on to the classified investments forever and use the growing distributions to help retire the debt. They could sell a few more buildings wherever it makes sense to speed up the deleveraging. They have no maturities until 2022! I might buy some of this again.