McClatchy has $2 billion of debt, which it took on to buy Knight-Ridder, but sports a market cap of just $45 million. Yet it isn't all that debt that's making life hard at McClatchy.
Even if its creditors were to convert their loans to equity, cutting out interest payments entirely, McClatchy would still be losing money. In the first quarter, advertising revenues at the chain plunged 29% from the year before to $285 million. Sure, costs have fallen too, but by only 12%.
As a result, McClatchy has now reached a point where the price of paying its reporters and printing and delivering newspapers to its customers is $11 million greater than the income it generates. And that's before making the $34 million interest payments due to its creditors each quarter.
So if McClatchy entire debt was erased the company would still be losing money -- no investors would want a piece of this company. Which argues against restructuring the company in bankruptcy.
In most bankruptcies if the lenders convert to owners and the debt is reduced or eliminated, then a healthy company emerges from bankruptcy. But these figures indicate a post-bankruptcy McClatchy would not be healthy.
If the corporate office decides to take action as the financial situation deteriorate, look for McClatchy to take a hard look at shuttering its papers that are the biggest money-losers.
UPDATE: Reader Walt-in-Durham took a close look at the numbers and says the Knight Ridder purchase actually reduced MNI's losses.
Hat tip: email