September 9, 2011

Associated Press | Romenesko+ Memos
Lee Enterprises, publisher of the St. Louis Post-Dispatch and other papers, says it’s reached a deal with most of its lenders to give the company more time to pay back its debt. Uncertainty about whether Lee would be able to repay about $1 billion in debt due in April had raised fears that the chain might have to seek bankruptcy protection, reports the AP. Lee says in a letter posted below that it has an agreement to refinance $864.5 million of its debt, under which it would pay steep interest rates to extend the repayment dates to 2015 and 2017.

September 8, 2011

Dear Lee Stockholders and Employees:

I am delighted to report excellent news. Lee has reached agreement with a significant majority of the holders of its revolving credit and term loan facilities to provide for extension of maturities to 2015 and 2017.

This is the first and biggest step in a process that we expect to conclude over the next several months. The agreement will allow us to refinance our bank debt on good terms and keep Lee on solid financial footing as we continue to expand our digital platforms, build audiences, drive revenue performance and improve our balance sheet.

Lee’s current credit facility will be amended and extended beyond its current maturity of April 2012 in a structure of first and second lien debt. The first lien consists of a term loan of $689.5 million, along with a $40 million revolving credit facility that is not expected to be drawn at closing. The second lien consists of a $175 million term loan.

Among provisions of the agreement:

* The first lien term loan of $689.5 million carries interest at LIBOR plus 6.25 percent with a LIBOR floor of 1.25 percent. The maturity is December 2015. Interest on the $40 million revolver is LIBOR plus 5.0 percent, with a LIBOR floor of 1.25 percent. Quarterly amortization payments for the term loan total $10 million annually in the first year, beginning June 2012, increasing to $12 million in the second year and to $13.5 million thereafter. A quarterly cash flow sweep will also be used to reduce debt. Covenants include a minimum interest coverage ratio, maximum total leverage ratio and capital expenditure limitation.

* The second lien term loan of $175 million carries an interest rate of 15 percent and matures in April 2017. It requires no amortization and has no affirmative financial covenants. Creditors will share in the issuance of approximately 6,744,000 shares of Lee Common Stock, an amount equal to 13 percent of outstanding shares on a pro forma basis as of the closing date.

* As a condition to the agreement, Lee will be required to refinance the remainder of its debt, the Pulitzer Notes, with a separate $175 million loan still to be arranged. The current obligation matures in April 2012.

The method for implementing the agreement is expected to be determined within the next few weeks. Support among creditors has already reached more than 90 percent. If we can achieve lender support of 95 percent and assuming successful completion of the Pulitzer Notes refinancing, we expect to implement the transactions out of court. Otherwise we will seek to implement the transactions through a favorable prepackaged Chapter 11 filing. While such a filing would fall under bankruptcy laws, in Lee’s case, it would simply provide a favorable legal framework for quickly implementing the refinancing terms that have been agreed to by a substantial majority of our creditors. It would have no adverse impact on company governance, operations, employees, vendors, contractors or customers. The agreement preserves stockholders’ interests, although the number of outstanding shares will be increased by about 13 percent, creating corresponding dilution.

All of this amounts to a more favorable result than the transactions we considered this past spring. In May, we withdrew plans for an offering of bonds totaling $1.055 billion and stock as a way of refinancing our debt. The timing was not right, as potential investors sought terms and conditions that we believed were not in the best interest of Lee or its stockholders.

The refinancing will remove a cloud that has obscured Lee’s formidable strengths in our markets, how far we have advanced against the challenge of the national economy, and how successfully we are seizing emerging opportunities in the changing media landscape:

* We have more journalists in our markets than all of our competitors combined and provide news vital to our communities. Without us, most local news would never come to light.

* We also have more sales representatives, and no competitor can match the results we deliver for advertisers. Because of our strong products and sales culture, Lee has outpaced the industry in advertising revenue performance for eight years running.

* More than 80 percent of adults in our larger markets read or use our print and digital products each week. More than two-thirds of 18- to 29-year-olds read or use our newspapers. We deliver news, information and advertising around the clock on our websites, mobile sites, smartphone apps and tablet apps.

* We continue to drive rapid digital growth, with year-over-year digital advertising revenue up 22 percent in the June quarter. Unique visitors to our digital sites increased 29 percent to 21.6 million in the month of June versus a year ago, while mobile page views jumped 220 percent. This summer, we have deployed latest-generation iPhone applications in all 53 of our markets and upgraded our smartphone apps for local sports. We also are in the process of rolling out iPad apps in 10 of our larger markets, with others to follow.

* Through the recession and the slow economic recovery, we have continued to readjust our business model and produce strong cash flow, allowing us to reduce debt by $760 million since June 2005.

In brief, we believe the refinancing agreement, together with our many strengths and accomplishments, helps reinforce a solid foundation for Lee’s future.

With deep appreciation for your continuing support,

Mary Junck

Chairman, President and Chief Executive Officer

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From 1999 to 2011, Jim Romenesko maintained the Romenesko page for the Poynter Institute, a Florida-based non-profit school for journalists. Poynter hired him in August…
Jim Romenesko

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