As summer gets into its stride, the burdens weighing upon indebted media companies grow heavier.
Yesterday, Johnston Press announced the postponement of a test of its banking covenants from tomorrow until the end of August.
In plain language, this suggests that Johnston Press is no longer generating sufficient profit to keep its bankers happy — something the company predicted might happen as recently as mid-May.
The temporary solution involves JP’s bankers averting their gaze for the rest of the summer. Meanwhile, talks will continue about the company’s £450m debt pile, most of which needs to be re-financed between now and September 2010.
With dogged determination, finance director Stuart Paterson continues to insist that a ‘severe cyclical downturn'(rather than structural change or ill-advised borrowing) is to blame for the vast majority of the company’s woes.
Yet not much is going to change between now and the re-scheduled covenant test in late August — at least not in terms of underlying performance. Only recently Johnston Press suggested that analysts should revise their annual profit forecasts toward ‘the lower end of current market expectations”.
So change of a different kind must be on the cards. In the wake of Digital Britain, Johnston Press may finally succeed in offloading some of its assets. It would be surprising if the company wasn’t already engaged in talks about further industry consolidation.
But how much cash could Johnston Press raise by horse-trading the awkward bits of its portfolio where costs can’t be cut much further? The botched effort to sell its Irish newspapers is hardly reassuring.
Alternatively, the banks may re-finance the company’s loans on aggressive terms or swap some debt for equity. They may also insist that shareholders in Johnston Press share their pain.
This would be an unpleasant prospect for both the founding Johnston family (whose shareholding was diluted from 19.5% to 7.6% after JP’s rights issue last summer) and Tatparanandam Ananda Krishnan, the Malaysian tycoon who spent £80m buying into Johnston Press at significantly north of 100p s share last year. Today, the company’s shares are trading at 19.25p.
Johnston Press is currently telling the world is that negotiations are ‘constructive”.
It remains to be seen whether they stay that way. Solving Johnston Press’s debt dilemma will prove a lot more problematic than ongoing efforts to do the same at Independent News & Media.