Monday, March 23, 2009

About AH Belo and EBITDA

A commenter has posted this and I thought it needed it's own posting.
Is this person correct? Read for yourself:

While I am not an expert in corporate finance, I am concerned about AHBelo's cash flow and its loan obligations to its lenders.

The information I am going to refer to is in the company's annualreport (10-k report), available on the web at

Here is a summary of that it says regarding its credit arrangements with the banks:

-- On February 4, 2008, the Company entered into a $100 million credit agreement with JP Morgan Chase Bank, J.P. Morgan Securities, Banc of America Securities and Bank of America. At that time the company had no debt.
-- As of September 30, 2008, the Company was not in compliance with the credit agreement. The company has used $10 million of its line of credit.
-- During the fourth quarter of 2008, the Company's bank group approved an amendment credit agreement. (In part reducing the line of credit to $50 million.)
-- On January 30, 2009, the Company amended its credit agreement again. Among other matters, the amended credit document creates a line of credit secured by the Company's accounts receivable, inventory, real property and other assets; and sets earning benchmarks that the company must meet.

Under the credit agreement the Company must meet the minimum adjusted EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) as outlined below:

For the six months ended March 31, 2009: -$4,000,000 (a negative number)

For the nine months ended June 30, 2009: $6,500,000

For the 12 months ended September 30, 2009: $15,000,000

For the 12 months ended December 31, 2009: $22,500,000

The key question is whether the company and meet these benchmarks. If it doesn't, several things could occur:
-- AH Belo renegotiates its credit agreement
-- The banks foreclose on AH Belo's property
-- The company goes into bankruptcy

My question: How realistic is it that AHBelo will meet any of those goals? Do we hit the wall at the end of the month?