New York Times Company plans to use the funds received from companies controlled by Mexican billionaire Carlos Slim to refinance existing debt, including money borrowed under a revolving credit facility that matures in May.
The publisher received $250 million (Dh918m) in financing from Slim as the newspaper industry confronts plummeting advertising revenue and tighter credit markets.
In return, Banco Inbursa and Inmobiliaria Carso will get senior unsecured notes due in 2015 with detachable warrants, New York Times said in a statement.
The loan gives New York Times increased financial flexibility, and the company will continue to work toward reducing debt, Chief Executive Janet Robinson.
New York Times has a $400m credit line expiring in May. It is trying to raise $225m from a sale-leaseback of its Manhattan headquarters and last month said it is open to funding options including revolving debt, public offerings and private placements. The publisher finished the third quarter with $1.1 billion in debt and $46m in cash and equivalents.
"They need all of the fuel they can get to keep going," said Richard Dorfman, Managing Director of the investment firm Richard Alan in New York. The company is grappling with an industrywide migration of advertisers and readers to the Internet, coupled with a recession that is forcing US businesses to reduce marketing.
In a December memo to employees, Arthur Sulzberger Jr, the company's chairman and the publisher of its flagship newspaper, called the 2009 financial outlook daunting. New York Times, the third-largest US newspaper publisher, posted a 13 per cent drop in ad sales for the first 11 months of 2008, including a 21 per cent plunge in November.
Slim holds 6.9 per cent of New York Times Class A shares, making him the third-biggest investor outside of the controlling Ochs-Sulzberger family. At the time of his initial investment, Slim cited the company's "attractive value".
He won't get a seat on the board, however, the New York Times reported yesterday. The senior unsecured notes, callable after three years, have a coupon of 14.053 per cent and are due in 2015.
New York Times may choose to pay three per cent of the coupon with more debt.
Banco Inbursa and Inmobiliaria Carso also received warrants for 15.9 million New York Times Class A shares at a strike price of $6.3572, expiring in six years.
"Slim's investment buys them time so they don't have to sell the assets at a fire sale," said Ken Doctor, an analyst at media consultant Outsell Inc. in Burlingame, California. "The ability to fetch a decent dollar from asset sales is probably going to be better by the end of 2009 than now."
"The company may eventually sell its regional newspaper group and the Boston Globe, as well as the baseball club, to focus primarily on the flagship publication while investing online," Doctor said.
Slim probably saw an opportunity to increase his stake in a strong brand at a favourable return, said John Morton, a newspaper analyst and president of Morton Research Inc.
"For New York Times, it is money to fill the void from the credit facility while debt markets stay frozen," Morton said.
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