Gannett: The Bigger They Are, The Harder They'll Fall

Measured by daily circulation, the Gannett Co. is the largest newspaper publisher in the U.S. In addition to USA Today, it owns seven other of the top fifty largest daily newspapers in the country; dozens of radio and TV stations; and a number of digital properties, most notably, the promising elevator-based Captivate Network, which we profiled last week.

But despite its size, or perhaps because of it, Gannett is in truly big trouble. The best in-depth analysis of the company’s current financial mess I’ve seen was posted recently to The Deal Magazine by Richard Morgan. Some of Morgan’s findings:

• The company faces a ton of debt coming due and will find it difficult to raise an estimated $400 million it needs between now and 2011.
• Part of the problem is “a debilitating number of so-called negative-basis trades featuring credit-default swaps (CDSs),” which have played a starring role throughout the financial collapses characterizing the current recession. In complex ways that are best left to Morgan to deconstruct, there appears to be a large bubble of speculative risk embedded in this mix for Gannett.
• Gannett’s current financial situation seems comparable in key ways with what happened at AIG, GM, and Lehman Brothers. Not good company for the nation’s largest newspaper publisher.
• By the middle of 2011, Gannett will have pay off $712 million in debt. In the first half of 2012, the company faces another $2.8 billion that is scheduled to come due. This, after recent efforts to push these obligations out to 2015 or so received only lukewarm responses from investors.
• In this context, it is hardly surprising that Moody’s slashed Gannett’s credit status to junk in February, and indicated in April that further downgrades may be forthcoming.
• The bottom line: “Gannett as we know it will be lucky to last through June 2011.”

For those not faint of heart, there is much more detail in Morgan’s excellent piece than I can summarize here, so to read the entire article, follow this link. Just don’t be surprised if the word “default” lies in Gannett’s not-so-distant future, followed by several other extremely unpleasant words we’ve come to expect from once-mighty ventures as they fall.