You Get What You Pay For

Star Tribune Provides More Bad News (WSJ sub req):

It looks like Star Tribune was cheap for a reason.

The $530 million Avista Capital Partners paid for the owner of the Minneapolis newspaper this year equated to a bargain-basement 6.5 times cash flow.

This Wall Street Journal story from January called it a "gutsy" move by the private-equity firm, given that the paper, the 15th-largest in the country, stands out for its poor performance in a poor performing industry.

Late word from Standard & Poor's Leveraged Commentary & Data seems to bear out the old adage that you get what you pay for. According to S&P (a division separate from the ratings group), so-called first-lien debt of the closely held company tumbled to as low as 96 cents on the dollar following a conference call with credit investors to discuss the company's recent performance. That's a whopping 3-cent move that puts the paper at a level usually reserved for companies in distress. (Trouble the company was already having is evident in this Wall Street Journal story last month detailing plans to slash jobs.)

Bankers for Tribune, the Chicago newspaper company not to be confused with Star Tribune, are likely to be watching what's going on in Minneapolis carefully. That's because, as this recent WSJ story makes clear, the publisher is looking for financing to back its own $8.2 billion takeover. Tribune already had a hard time selling the first $7 billion it needed to fund the deal, and the $4 billion in loans and bonds it still needs to sell are looking like a taller order now.

As the story, and this post we did yesterday indicates, as easy as it is to get credit investors to part with cash these days, there's an increasing number of companies with disappointing results. And in those cases, the credit markets aren't quite so easy these days.

We were unable to get a quick comment from Star Tribune.

Probably because the ladies in the phone room are all gone.