Postmedia reduces debt load by $300M by turning debt holders into shareholders

Postmedia management has made a deal with the majority of its bondholders and shareholders that will see some ofits lenders become majority owners of the company, and wipe out $307 million worth of debt in the process.

The newspaper chain announced a "recapitalizationtransaction" that will see bondholders get 98 per cent of the equity of the company, leaving existing shareholders at just two per cent.

Postmediashares have been effectively worthless for much of the past year, dropping from a high of over $15 a share five years ago to 1.5 cents per share today. Postmedia shares were halted on the TSX Thursday while shareholders digest the news. When trading reopened, the shares jumped to 2.5 cents.

The complextransaction effectively allows the company to shore up its balance sheet by eliminating a good portion of its large debt load.

• Postmedia debt is 'like a noose around the neck' CEO Paul Godfrey says

The company insists its operations will be unaffected by the deal.

"Postmedia will continue to operate its business and satisfy its obligations to trade creditors, customers and employees, including under its pension and benefit plans, in the ordinary course of business," Postmedia said in a release.

The complex deal has three main components:

• One type of debt holderswill get a $78 million Cdn payment in exchange for delaying their repayment schedule of the remaining $225 millionfor five more years.
• A second tier of lenders, who collectively are owed$268.6 million US, will instead become shareholders, and own 98 per cent of the new company
• The company will get $110 million Cdn worth of new financing, which mustbe repaid in 2023.

Postmedia said it has the support of more than 80 per cent of its debt holders, and three-quarters of its shareholders, for the deal. But the transaction must get the official OK from all stakeholderslater this summer before going ahead.

Postmedia said the deal wipes out roughly $307 million worth of debt from its books, and will save the company $50 million a year in interest charges alone.

• Postmediacuts 90 jobs, merges newsrooms following Sun deal

"With the strong show of support from our stakeholders and the hard work and commitment of our management team and board of directors, this will put Postmedia on a stronger footing into the future, and allow us to continue to pursue our business strategy," CEO Paul Godfrey said in a release.

The company also says it has about $40 million to $50 million worth of real estate, which it is looking into selling in order to further shore up its books.

The deal came on the same day that Postmedia posted quarterly results. Revenue rose more than six per cent to $218 million, but still posted a net loss of $23.7 million. That compares with a loss of $140.8 million during the same period a year earlier.

Postmedia's earnings pegged the company's debt load at $648 million, a figure that doesn't factor in the impact of the proposed debt deal also announced Thursday