• by Erik Sass  @eriksass1, July 29, 2008

In a sign of how dire things have become for the newspaper business, The Journal Register Co. announced it had struck a deal to delay interest payments to several banks until the end of October. The company also hired a "chief restructuring officer" to help management navigate its financial morass. JR de-listed its stock, trading at four cents a share, from the New York Stock Exchange.

The company, which publishes 27 mostly small newspapers, is carrying $640 million of debt, an intimidating figure next to total revenues of just $463.2 million in 2007. This tally comes after the company paid down the debt from $730.2 million through the sale of a group of newspapers in New England.

In light of this, Standard & Poor's has given the firm its lowest credit rating: "D." As a rule of thumb, lenders often stipulate that debt should never exceed 8 to 10 times a company's free cash flow in a year; Journal Register's debt in 2007 was about 11.7 times its free cash flow of $54.5 million from operating activities.

It may be cold comfort, but Journal Register isn't alone. In June, the owners of The Philadelphia Inquirer and Philadelphia Daily News missed a scheduled payment on part of the roughly $500 million debt incurred in their highly leveraged acquisition of the papers in 2006. Specifically, Standard & Poor's said Philadelphia Media Holdings, the consortium representing the owners, missed a payment on $85 million owed to the Royal Bank of Scotland.

Speculation is also rampant that Tribune Co. could default on its debt of $12.8 billion, including about $8.2 billion incurred in the sale to Sam Zell, sometime this year or next. Its bond covenant requires the company to maintain a ratio of cash flow to debt no less than 1-to-9. That means it must generate cash flow of about $1.1 billion in 2008, but this goal looks increasingly unrealistic, considering that cash flow in the first quarter of 2008 fell 16% to $200 million. If the rest of the year follows suit, the company will generate total cash flow of just $970 million.

Separately, A.H. Belo reported a 21% drop in ad revenue in the second quarter of 2008, with total revenues sinking 15% to $163.2 million. To offset the precipitous decline in revenues and income, the company is moving to reduce its workforce by 500 employees, or roughly 14%, while trimming about $50 million in costs. The job cuts come after the company already eliminated 170 positions through natural attrition and leaving empty posts unfilled.

Like other newspaper publishers, A.H. Belo has suffered from big declines in classified revenues for several years, now joined by declines in national and retail revenue as well. It is especially vulnerable to these declines because it owns the Dallas Morning News and the Press Enterprise in Riverside, California--Sunbelt markets that have been hit especially hard by the real-estate downturn, along with Arizona and Florida.