Johnston Press: The fat lady ain't singing yet

Contrary to popular belief, the road to repossession for most hard-up homeowners is a long and winding one. It’s the same with companies.

NTL, the cable company that once employed Lord (Stephen) Carter, spent years staggering from debt crisis to debt crisis. Somehow, though, NTL still managed to find the money required to dig up roads and send out inaccurate bills.

Banks hate calling in debts. Why? Because it forces them to write off assets. Getting involved in debt-for-equity swaps is anathema, too. As recent events have proved, bankers don’t excel at running businesses.

Confronted by their employer’s failure to sell a dozen or so Irish newspapers for a decent price, what should journalists who work for Johnston Press be thinking this morning?

‘The prices offered [for the Irish newspapers] wouldn’t have made any significant impact on our levels of debt,’said Stuart Paterson, chief financial officer at Johnston Press.

When your net debts are £448m, is a 10% reduction significant? You might think so. But selling assets at fire sale prices and breaching banking covenants all the same –- well, this wouldn’t make much sense, either. 

Johnston Press is more heavily indebted than most other UK media organisations because it made stunningly bad choices during the past decade. But its back is not yet entirely against the wall. The company’s ability to walk away from an Irish fire sale suggests that it has other options.

Johnston Press will now ask the banks to loosen their covenant requirements in terms of the ratio between operating profits (EBITDA) and net debt. It also wants to discuss ‘more appropriate’arrangements ‘extending beyond September 2010″.

Independent News & Media has already performed this trick — provisionally — with banks to whom it owes €590m. (Notably, however, bondholders are still holding out, and INM’s debts are less onerous inrelative terms than Johnston’s.)

Johnston Press will walk into talks with £30m in projected cost savings up its sleeve for 2009. The company is still generating more cash than it pays out. At some point, too, the company will benefit from the government’s impending relaxation of competition law.

We’re not yet looking at a situation in which bankers give up hope of ever getting their money back.

At the moment, I suspect that the real risks have less to do with bank debt than the state of the economy. This morning’s trading updates from Trinity Mirror and Johnston Press offered little sign of improvement.

Every media boss in the land is busily proclaiming that year-on-year comparatives will improve in the second half. Perhaps. But cash is what counts. Life will really only become interesting for Johnston Press – in the Chinese sense – if the green shoots retreat and a double-dip recession becomes a reality.

Under this scenario, attitudes would harden as profits become a distant memory. We’re not there yet, not by some distance.

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