GateHouse was organized by the private equity firm Fortress Investment Group, which still owns 42 percent of the company. It rolled up acquisitions of newspaper companies operating away from big cities. An important early acquisition: Community Newspapers Co., about 100 small papers owned by Boston Herald publisher Pat Purcell.
Along the way, GateHouse piled up some big secured loans. It owes $670 million on its largest term loan, $250 million on another, and $275 million more on a third.
Stock investors weren't shy, either. GateHouse went public three years ago in an offering of stock that sold for $18 per share.
How did the GateHouse plan ever fly with investors or creditors? Two ideas were popular when GateHouse executed its buying binge. For one, debt was cheap and available. For another, stalled industry revenues convinced many that consolidation was the way to squeeze growth out of newspapers.
But the GateHouse strategy was a recipe for disaster when revenues sunk. The company posted a loss of $673 million last year. Its shares now trade for 27 cents. The GateHouse plan to cope with all its debt depends on investors selling some back to the company at a discount over three years.
Analysts at Standard & Poor's note that cash generated by the business is very low in relation to the amount of debt owed and warn that something will have to give.
The irony is, the article points out, that GateHouse's newspapers, on their own, are making money.
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