The New York Times Company (NYT), one of the leading diversified media company, has recently announced to prepay one of its largest financial obligation, which it owes to Carlos Slim Helu, the world's richest man, on August 15, 2011.
Compelled by a decline in print advertisements and credit crisis in 2009, New York Times issued $250.0 million 14.053% notes to Carlos Slim on January 15, 2009. The maturity date of the notes is January 15, 2015. As the credit market has normalized and funds are available at cheaper rates, it is very prudent to repay the high cost obligations.
New York Times will have to pay a total sum of approximately $279.0 million including principal amount, accrued interest and a premium in connection with the prepayment. The move will result in savings of approximately $39.0 million annually through January 15, 2015. However, the company has to bear a one-time loss of $46.0 million in the third quarter of fiscal 2011.
As per management, the company has enough funds to repay this debt. In the past two years, management has taken prudent steps to improve the company's financial flexibility including the resent stake sale in Fenway Sports Group. New York Times sold 390 Class B units of Fenway Sports Group, which accounts for approximately 55.7% of its total stake in the company for a sum of $117.0 million. The deal is expected to provide New York Times a pre-tax gain of $64.0 million in the third quarter of fiscal 2011. However, the names of the buyers were not disclosed by the company.
In an effort to offset the declining revenue and shrinking market share, publishers are increasingly focusing on reducing costs. The New York Times in the recent past has been realigning its cost structure, and streamlining its operations to increase efficiencies, while improving its operating performance.
However, advertising remains a significant source of revenue for the company, which in turn, depends upon the health of the economy. The macro-economic factors such as sluggishness in business spending, high unemployment and falling home sales may adversely affect the level of national, retail and classified advertising revenues, as advertisers cut their budget in response to weak economic conditions.
New York Times, which faces competition with News Corp. (NWS) and The Washington Post Company ((WPO), currently retain a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Our long-term recommendation on the stock remains 'Neutral'.
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