From the WSJ:

Former federal officials have dubbed Citigroup the “Death Star,” comparing the bank’s threat to the financial system with the planet-destroying super weapon in the “Star Wars” movies. Privately, in the words of one official, they regard the banking giant as “unmanageable.”

Lee Enterprises, the nation’s fourth biggest newspaper chain, has been granted a last-minute stay of execution. The new execution date is April 28, 2012, when Lee will owe principal payments of $721m, plus interest.

To put this number into context for you, if Lee sold off all its printing plants, buildings and equipment, and liquidated all its inventory to satisfy its creditors, it would still be $400m short. Stil, Lee thinks it can somehow gut it out. Its sees its enormous problems as temporary, so the party continues!

Lee’s most pressing concern was a $306m balloon payment due to institutional investors in April.  The newspaper company was hit hard by the fall in ad revenues and so bloated with debt that it didn’t have enough cash to pay.  But rather than force Lee into bankruptcy, the lenders have given Lee a three-year reprieve:

Lee today repaid $120 million of the principal amount of its $306 million Pulitzer Notes debt due in April 2009 using a portion of its restricted cash, which totaled $129.8 million at Dec. 28, 2008. The remaining debt balance of $186 million has been refinanced by the existing lenders until April 28, 2012. Under the agreement, $9 million of restricted cash was retained to facilitate the liquidity of the operations of Pulitzer Inc., a wholly owned subsidiary of Lee, and its subsidiaries.

But like a good loan shark, the lenders are going to wring extra dollars out of Lee. Beginning in June, it must pay its lenders $4m every quarter. In October 2010, it will pay a total of $8m cash. Plus the interest rates on the Pulitzer Notes will rise from 8.05 percent to 9.05 percent next year, ultimately increasing to 10.05 percent ($19m) by 2012.

Lee also owes $1.1b amount to the bank, who make concessions to allow the company to survive. Lee owes the bank principal payments totaling $234m over the next three years. Payments at maturity will increase $80m to $535m due April 2012.

Escaping the hangman’s noose wasn’t cheap, by the way. Refinancing this whole mess cost Lee $20m.

Abandon all hope, ye who enter here.

Moody’s today lowered its rating on the debt of The New York Times to junk status.

This means that bonds the Times issues are now considered speculative and the newspaper company will have to pay higher rates of interest to attract investors.

This will increase the pressure on the Times, which is already struggling to cope with a sheer drop in advertising revenues and a large debt load it has to finance.

The real news is the dramatic rise in the newspaper’s unfunded pension liabilty. Moody’s estimates it at a whopping $750m for the end of 2008. (The Times hasn’t released its year-end results yet.)

The Times debt is now six times its annual earnings before it deducts taxes and accounting charges (EBIDTA).

That’s a debt that must be paid. If the Times can’t pay it, then you will. If the Times goes into bankruptcy, which isn’t likely, taxpayers will cover much of the unfunded Times pension liability through the the Pension Benefit Guaranty Corporation.

The latest figures available are from the end of 2007, when the company disclosed a $275m gap between its $1.82b in obligations to its retirees and the $1.55b value of the fund assets set aside to pay ex-Timesmen.

If I’m reading this right, that gap grew by $500 million in fiscal 2008. That  means the pension plan lost as much as 32 percent of its value. Given that the S&P 500 lost 38 percent last year, this seems to make sense.

The newspaper company is in trouble. It recently got a $250m capital infusion from Mexican billionaire Carlos Slim, but the Times must pay more than 14 percent annual interest. The Times is also trying to tap the capital locked up in its brand-new headquarters that could bring in another $225m.

Dark days indeed.

Update: Times CFO James Folio disclosed Jan. 28 that the company’s unfunded pension obligations are $625m, which means the pension fund lost $35om or 23 percent in 2008. That will cost the Times an extra $100m for the next seven years.

It’s ironic that Lee Enterprises, a company that prides itself on the transparency and openness of its journalism, is engaging in a bit of financial trickery to fool investors.

Lee is a sinking ship. Its anchor has snagged on $2 billion in debt while the company is being pounded by a fierce gale.

To keep investors from fleeing in the lifeboats, Lee Enterprises announced today that it’s resorting to the financial equivalent of rearranging the deck chairs: a reverse stock split.

This is an utterly meaningless gesture designed to make it seem that the company’s worthless shares actually have more value. If you’re stupid enough to buy Lee stock after that, you deserve what you get.

Investors weren’t fooled. Shares of Lee fell nearly 14 percent today to close at 31 cents.

A reverse stock split means that instead of 100 shares of Lee worth $31 at today’s closing price, you will have 5, 10, 20, or 50 shares of Lee worth $31. It’s like exchanging 310 dimes for 124 quarters.

Nothing changes. It does nothing to address Lee’s huge problems in either the short-term or the long-term. That’s why the list of companies that went into bankruptcy after a reverse stock split is long.

But Lee is desperate to rejoin the New York Stock Exchange, which doesn’t want to trade piddly-ass penny stocks. If only the company cared as much about journalism as it does about its stock price.

Addendum: The company did receive a temporary reprieve from certain “covenants” on its Pulitzer debt, which means that Lee isn’t in default, yet. However, if I’m reading the company’s release correctly, Lee still owes a $306m balloon payment due in April. (background here).

In End Times, Michael Hirschorn of The Atlantic who gazes into his crystal ball and sees the death of The New York Times.

It’s certainly plausible. Earnings reports released by the New York Times Company in October indicate that drastic measures will have to be taken over the next five months or the paper will default on some $400 million in debt. With more than $1billion in debt already on the books, only $46million in cash reserves as of October, and no clear way to tap into the capital markets (the company’s debt was recently reduced to junk status), the paper’s future doesn’t look good.

Times spokeswoman Catherine Mathis responds with a mighty bitchslap:

Your article “End Times” which speculates on whether The New York Times can survive the death of journalism, leaves a lot to be desired from the standpoint of . . . well, journalism.

Granted Hirschorn is being a bit irresponsible because, as he himself admits, the chances that the Times will go under are very slim, but methinks Mathis doth protesteth too much.

The Times is in trouble: The paper recently announced plans to borrow $225m against its beautiful, brand new steel-and-glass 52-story headquarters to deal with a cash crunch of its own making.

You would think that given what’s going on in the industry, the Times would tighten up operations, but American Thinker points out that in March 2007 the company increased its dividend 31 percent to 23 cents a share to “return more capital to shareholders.”

Twenty-three cents a share may not sound like a lot but it cost the company $132m a year. Of that, $25m went into the accounts of the Ochs-Sulzburger family that controls the paper. The family rode that gravy train until November, when the dividend was slashed to 6 cents.

But the Old Grey Lady isn’t exactly sitting on a pile of cash like, say, Microsoft. While the family was collecting its dividend checks, the Times was trying (and failing) to slash its costs by about $140m a year, almost exactly the amount of the dividend.

The Times couldn’t right the ship, so it has been tapping $400m from its two revolving lines of credit to pay expenses, including the dividend. One of those credit lines is expiring in May and no one’s willing to lend these days. So the Times is now borrowing against its headquarters to pay the bills. (Mathis points out that technically, the Times isn’t borrowing but arranging a sale-leaseback, but I think that’s a distinction without a difference.)

The Times borrowed to pay its investors with money it doesn’t really have. Somebody please explain to me how this is different than a Ponzi scheme.