• by Erik Sass  @eriksass1, December 8, 2008

In another sign of the mounting financial woes of the newspaper industry, the McClatchy Co. is trying to sell one of its biggest newspapers, The Miami Herald, according to the New York Times Web site, which reported the news Saturday. McClatchy faces an uphill battle, as lenders have shown themselves unwilling to fund newspaper acquisitions as the economy tacks sharply downward.

MH is a relatively recent addition to McClatchy's stable of newspapers, acquired during its $4.5 billion buyout of rival publisher Knight-Ridder in 2006. At the time, McClatchy immediately sold 12 newspapers in larger markets, explaining that they didn't fit with its strategy of focusing on high-growth areas. The Miami Herald was one of the few papers in a major market retained by McClatchy, but this decision has evidently been reversed.

McClatchy may need extra cash to make payments on its remaining debt from the Knight-Ridder acquisition and other borrowing, which totaled $2.07 billion at the end of September. In September, it amended the agreement, covering $1.175 billion of that debt to account for the continuing decline in cash flow. However, the rapidly worsening revenue situation may have already outstripped this agreement.

The company is not alone in its fiscal woes. Several other big newspaper publishers are on the rocks, or approaching them. On Monday, the Tribune Co. filed for bankruptcy protection, indicating that it is unable to service its $13 billion debt under the terms originally agreed with lenders. Philadelphia Media Holdings, the publisher of The Philadelphia Inquirer, defaulted in June, followed by The Journal Register Co. in July.

The newspaper industry overall faces a catastrophic decline in print advertising revenues, as all the major classified categories have been joined during the last two years by national and retail advertising in experiencing double-digit declines. According to the Newspaper Association of America, classified revenues declined 31% in the third quarter of 2008 compared to the same period last year, while national fell 18.4% and retail dropped 11.7%

Given this situation, McClatchy will probably find it difficult to get a fair price, if any, for The Miami Herald. The financial woes of newspapers do not make them attractive acquisitions, and banks are much less likely to lend money for risky deals in light of the global credit crunch. Last Wednesday, another newspaper--the Virginian-Pilot in Norfolk--was taken off the market after potential buyers could not arrange financing. Several other sizeable dailies, including The San Diego Union-Tribune and Austin American-Statesman, have been on the market without finding a buyer for months.