After furloughing hundreds of Lee Enterprise employees during the coronavirus economic downturn last quarter, the media company was able to pay billionaire Warren Buffet's finance company $36.7 million under the debt refinancing deal agreed to earlier this year.
Lee – owner of the Quad City Times and Dispatch/Argus and 75 other daily newspapers and online news sites – owes Buffet's BH Finance LLC more than $539 million, which carries an annual interest rate of 9 percent.
When Buffet sold his newspaper/online news group, BH Media, to Lee in March, the transaction added $140 million to Lee's existing debt of $431 million. Most of Lee's debt was incurred in 2005 when it made an ill-timed acquisition of the St. Louis Post-Dispatch for $1.5 billion.
As Lee's quarterly financial report to the Securities and Exchange Commission (SEC) explains:
"On March 16, 2020 in connection with the closing of the Transactions, the Company completed a comprehensive refinancing of its debt (the “2020 Refinancing”). The 2020 Refinancing consists of a 25-year term loan with BH Finance LLC (“BH Finance”), an affiliate of Berkshire, in an aggregate principal amount of $576,000,000 at a 9% annual rate (referred to herein as “Credit Agreement” and “Term Loan”). The proceeds of the Term Loan were used, along with cash on hand, to refinance the Company's $431,502,000 in existing debt as well as to fund the acquisition of the BH Media Newspaper Business assets and the stock of the Buffalo News for $140,000,000 in cash. With the closing of this deal, BH Finance became Lee's sole lender."
Under terms of the refinancing, "excess cash flow" – defined as cash on the balance sheet in excess of $20 million – is due within 50 days of the end of the quarter.
"For the 13-weeks ended June 28, 2020, excess cash flow totaled $36,710,000 and was used to pay debt in July 2020," according to the company's 10K filing with the SEC.
One of the factors allowing the company to achieve the "excess cash flow" and make the large loan payment was a 22 percent reduction in full-time employees and "furlough or compensation reductions for all employees in the 2020 quarter, totaling approximately $10 million," according to the company's quarterly report.
In comments to investor on the company's quarterly earnings call, Vice President, Chief Financial Officer and Treasurer Timothy Millage said the company "executed a temporary compensation reduction equal to two weeks for all employees. Executives received a 20 percent compensation reduction in addition to a reduction taken earlier in the year. These temporary cost actions reduced our costs by $10 million in the quarter."
"We ended the period with $56.7 million of cash on the balance sheet, creating excess cash flow as defined in our credit agreement of $36.7 million," Millage said. "This excess cash flow was used to repay debt in our fourth fiscal quarter at par, reducing our total outstanding debt to $539.3 million."
For the third quarter ended June 28, Lee lost $727,000 (2 cents per share) compared with net income of $6.2 million (10 cents per share) for the same period in 2019.
Millage told analyst the company "expects to achieve synergies" in a number of areas including "print transformation initiative in certain markets. . ."
"This project (print transformation) will reduce the number of days we print and deliver our print editions in certain markets by 1, 2 or 3 days depending on the market," Millage said in the call.
CLICK HERE to download Lee's third quarter financials.
