Banc of America Securities has landed a lead role on an upcoming bank deal for Lee Enterprises backing the $694 million acquisition of Howard Publications. "Prior relationship and competitive pricing," handed B of A the lead role, noted Carl Schmidt, v.p., cfo and treasurer of Lee Enterprises. He declined to comment on whether a bid was sent out. The acquisition will be paid for with $440 million in cash and the remainder from bank borrowings, with the spread likely to be 3% all-in, said Schmidt, though negotiations are still being completed. He declined to comment on the size of the bank deal and when syndication will be launched. B of A leads the current $50 million revolver according to Capital DATA Loanware.
Responding to a question on how conducive the bank market is right now to deals in this sector, Schmidt said, "Clearly the debt market has tightened since Lee was last in the market in 1998." The company does not have an official rating, but would be rated BBB, he added, and the increased debt levels would leave Lee Enterprises still solidly in investment-grade territory. The combined company will generate $60-70 million per year of free cash flow that can be used to retire debt, or for other purposes, including acquisitions, said Schmidt. "At our pro forma leverage of 2.5 times, we do not feel debt reduction is the only possible use of the cash generated in the business," he added. The transaction values Howard at about 14.1 times EBITDA for the last year, though anticipated EBITDA ratio for the year ending 2003 is 11.5 times.
Howard newspapers are community newspapers and include the North Country Times and The Waterloo Courier. Lee Enterprises, based in Davenport, Iowa, runs specialty publications and community dailies. "We do not expect to find anything as good at this price," said Mary Junck, Lee Enterprises ceo.