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Bondholders Bet Against Gannett

McLEAN, VA.: Cutbacks continue at Gannett, but current measures may be too little too late, according to a lengthy analysis making the rounds online. Employees at Gannett’s (NYSE: GCI) 23 TV stations have been hit with a pay cut based on how much they make. A memo attributed to broadcast division chief Dave Lougee said employees making at least $30,000 could take a pay cut effective July 1. The note blames the downturn of the auto industry, once the source of about 30 percent of the company’s TV station business. But the media empire built by Al Neuharth has bigger troubles than disappearing car ads.

“Because of the credit crisis, an unfortunate bunching of credit maturities and a debilitating number of so-called negative-basis trades featuring credit-default swaps--all in addition to the industry’s secular and cyclical downturns--Gannett as we know it will be lucky to last through June 2011,” wrote Richard Morgan in The Deal.

The 3,300-word drills into the nature of Gannett’s $3.7 billion debt. A majority is represented by credit default swaps by which bondholders make out better when an issuer files for bankruptcy or misses an interest payment. GCI’s debt structure came under scrutiny when the company attempted to spread out some of its due dates through a private exchange offer in April. Even though GCI offered a significantly better interest rate for each of two, four-year extensions, the take-rate was a conservative 26 percent. Gannett was left with $712 million in notes still due in 2011, and another $2.8 billion due in the first half of 2012, Morgan noted.

Gannett’s viability will be more apparent when the company reports 2Q results, he said. An investor conference call is scheduled for July 15 at 10 a.m. Eastern. The broadcast business is tough as it is, but GCI is foremast a newspaper empire, with 84 dailies led by the flagship USA Today, and 850 non-dailies.

“Yes, newspaper companies are in such trouble that even Gannett, arguably best of breed, faces challenges few imagined two years ago,” Morgan wrote. “Yet the most immediate challenge has little to do with the news business--just as this story has little to do with the news business--but features forces so opaque and arcane that Gannett’s thinly staffed dailies will be hard-pressed to cover them.”

Morgan’s accessible piece is available at:

Recent TVB Gannett coverage:
June 19, 2009Gannett Shares Inch Back from CEO Concerns
Shares of Gannett have slipped 8 percent since the company announced its chief executive was taking medical leave.

April 16, 2009Gannett TV Station Revenues Drop 16 Percent
Gannett’s 23 TV stations generated positive cash flow for the struggling media company in 1Q09.

April 7, 2009Gannett Offers Higher Interest in Debt Exchange
Gannett said it has commenced a private exchange offer for $200 million in notes due in 2011 and 2012.

March 23, 2009Gannett Continues Compulsory Furloughs
Gannett is repeating the money-saving strategy of one-week furloughs in the upcoming quarter.

Jan. 15, 2009Gannett’s Game Plan
Virginia-based media empire Gannett said it will send its entire workforce home without pay for one week, and freeze wages for the year, to avoid cutting jobs.
-- Deborah D. McAdams