In what industry insiders are calling “almost comical” and the “regular Friday extension”, Morris Publishing Group, LLC, publishers of The St. Augustine Record and Florida Times Union, announced that they will be granted yet another week’s protection from cross default penalties until October 9, 2009.
As reported last week, creditors of Morris Publishing seem to be signaling that, at some point, Morris must come up with the two semi-annual interest payments totaling $19.4 million that were originally due February 1, 2009 and August 3, 2009.
Last Friday, the senior bank group agreed to extend the date that those overdue interest payments would be made until October 16, 2009 — however, the waiver of cross defaults penalties arising from the overdue interest payments was only extended for one more week.
Being in non-compliance with the financial covenants outlined in its senior subordinated notes could trigger an acceleration of the date on which the entire balance owed would come due.
Slumping advertising revenues caused by the recession and changing media appetites have hurt Morris Publishing and other newspaper companies throughout the United States. This no doubt has contributed to the willingness of Morris’ creditors to relax the terms of their notes.
Thursday, Jacksonville Business Journal editor John Burr appeared with Business Journal reporter Kimberly Morrisson on WJCT Radio station 89.9 to talk with “First Coast Connect” producer and host Melissa Ross about the restructuring at Morris Publishing.
Burr, who has been with the Jacksonville Business Journal since June 2008, was previously Assistant Managing Editor at The Florida Times Union between January 1999 and the time he went to work for the Business Journal.
Burr’s assessment is that the Morris family, primarily Billy Morris who inherited the company from his father, built its chain of newspapers on debt. Burr said that the Morris Family is certainly “no stranger to debt”.
According to Burr and Morrison, Morris Publishing has bought some time; however, Burr says that everyone has been struggling to come up with a new business model for print in order to survive — but no one has come up with it yet. One of the big hurdles Burr sees for Morris Publishing is how to continue to attract advertisers in the digital age.
Morrison says that the weekly extensions can be attributed to about 25% of Morris Publishing’s debt holders who are not willing to accept less money for their notes. In Morrison’s view, Morris is likely making ultimatums to its creditors — “We can do this the easy way or we can do it the hard way”, she said.
To avoid fighting off their creditors in U. S. Bankruptcy Court, Morrison says that at some point Morris will have to pay, but, when asked by Ross, she admitted that it “remains to be seen” if they will be able to.
Morris Publishing used to be known for extremely high profit margins, “exceeding 40% most of the time”, according to Burr, and, “40% to 45%” of revenue to the chain was generated by the Florida Times Union. The success from advertising sales had a cost on the “news side”, Burr says. “Not a lot of money went back into the news product itself. Instead, the money went back to the Morris family.”
About three years ago, Morris Publishing sold off thirteen of its newspapers. In addition to a major restructuring at Morris, which Burr says is “not going to be easy or fun”, at some point in the next year, the economic recession is going to have to abate.
Photo credits: © 2009 Historic City News photographer Kerry McGuire