Morris Publishing in discussions to amend credit facility covenants; default possible in third quarter

By Jennifer Lanning Drey

Portland, Ore., Aug. 13 - Morris Publishing Group LLC is in discussions with its lead lender to amend its credit facility in order to avoid a potential breach of the related covenants in the third quarter, Craig Mitchell, senior vice president of finance and treasurer of Morris, said Wednesday during the company's second-quarter earnings call.

Morris was in compliance with all of the covenants and indentures under its credit facility at June 30 but warned that without an improvement in operating results, reduction of debt or relaxation of the covenants, it may fail to meet one or more of the covenants at Sept. 30.

With second-quarter operating income down 46.8% from the comparable period in 2007, Morris' operating results reflected one of the toughest advertising environments the company has ever faced, William S. Morris IV, chief executive officer of the company, said Wednesday.

Mitchell said the company has been involved in amendment discussions with JPMorgan, the lead bank on the facility, since the start of the year but is just beginning to "get into the nitty gritty" of establishing the type of relief that may be provided.

In the short term, relief is likely to come in the form a relaxation of the total leverage covenant along with a few definitional changes.

Longer term, Morris will work on restructuring the companies above Morris Publishing to provide additional relief, he said.

Debt decreases year over year

Morris ended the second quarter with outstanding debt of $417.1 million, compared with $522 million at the same time last year. The debt balance includes $52 million outstanding under the company's revolving credit facility.

After applying its most restrictive covenants, Morris had $13.8 million available under its credit facilities at June 30.

Cash was $4.9 million at the end of the quarter, Mitchell said.

Notes repurchased in Q2

During the second quarter, Morris repurchased $2.4 million of its senior subordinated notes. Year to date, the company has purchased $21.5 million of the senior subordinated notes at a cost of $12.5 million.

When asked whether the company plans to continue repurchasing the notes, Mitchell said it will look to work out the amendments prior to deciding whether additional note repurchases are an option.

Morris' second-quarter operating revenue was $82.2 million, down 14% from the prior-year period. Ad revenue results were impacted by the weak economy in all markets as well as secular trends affecting the industry, the company said.

Morris Publishing is an Augusta, Ga.-based media company.

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