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Alan Mutter at Reflections of a Newsosaur breaks down the issues facing the North County Times’ parent company, Iowa-based Lee Enterprises, in a post yesterday.

Lee, as we recently wrote, is struggling to repay $1.4 billion in debt it took on in 2005 to buy the Pulitzer newspaper chain. Its auditors have warned that it may be unable to shoulder the debt, and the New York Stock Exchange has warned the company that its stock may be delisted because its value has dropped below $1. (It closed at 43 cents Monday, down 99 percent from its 2004 peak.)

Mutter gives a preview of what’s in store for the company and examines what it would mean for Lee to file for bankruptcy protection. He says that a bankruptcy for the company would not likely shut down its newspapers, because they remain profitable.

He writes:

Given the weakness of the newspaper industry and the economy as a whole, the auditors are concerned that Lee will not be able to generate enough cash to make a $142.5 million payment due this spring on a portion of the debt it assumed when it bought Pulitzer. Failure to make the scheduled payment would trigger provisions in Lee’s other borrowings that would require immediate repayment of the rest of its $1.4 billion in debt. If Lee cannot make the payment on the Pulitzer note this spring and cannot persuade its lenders to relax the terms of the other loans, then it would find itself in default on most, if not all, of its $1.4 billion in debt.

If the company defaults on its debt, Mutter says:

A number of things can happen, ranging from the shutdown of the business (which would be extremely unlikely in this case) to a bankruptcy filing where the company goes to court to prevent its creditors from foreclosing on the loans and seizing the assets of the business. If Lee cannot renegotiate its debt with its lenders, the company may be forced to file for Chapter 11 bankruptcy protection in substantially the same way that the Tribune Co. did in December.

ROB DAVIS

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