Gatehouse Media 10K Filing Set for Tomorrow to Answer Questions

Gatehouse Media management has been giving indications that “going concern” language is unlikely in the 10K set to be filed tomorrow, according to sources. If so, investors in deeply discounted $1.18 billion in bank debt may have to wait another year for a trigger to get return in a restructuring scenario.

Also, tomorrow, investors will look to see how much Fortress Investment Group's funds – which also own 39.6% of the common stock – have increased on their holdings of $124 million of the term debt last disclosed Sept. 30, according to financial filings. Fortress had been snapping up more of the term loan in secondary purchases since the last quarter, according to sources. Sources put the increased position of the distressed investing private equity giant at possibly a “significant” increase to its previously disclosed holding.

Funds of institutional investors Third Avenue Management, Eaton Vance, Neuberger Berman Management, Invesco, and Putnam owned smaller portions of the bank debt through the end of 2012, according to recent SEC disclosures, while additional holders had recently included GoldenTree Asset Management – once the largest holder - GE Capital, Ares and KKR, according to sources.

Under the company’s credit agreement “any going concern” or similar language is considered an event of default. In such a scenario the company would have 30 days to cure that default, according to the credit agreement.

On this uncertainty, about $30 million to $40 million of the term debt has traded down from 37 to where it is now quoted at 32/33 since an uncharacteristic filing of preliminary results, according to sources.

GateHouse’s capital structure was put in place in 2007, comprising a $690 million term loan and a $250 million delayed-draw term loan at L+200, a $275 million incremental term loan at L+225 and a revolver.

For the fourth quarter, Gatehouse expects revenues of about $125.6 million and adjusted EBITDA of $22.3 million to $23.3 million, according to its preliminary results, both down compared with $144.4 million in revenue and $32.9 million in EBITDA the same quarter from the previous year.  For year-end Adjusted EBITDA of $80 million to $81 million would make the debt-to-EBITDA ratio would be nearly 15x.

Prior to the Feb. 11 announcement, Gatehouse had never given preliminary results before. The company felt compelled to do so because of some additional difficulties that it had experienced throughout the quarter it felt might have impacted results. The company wrote in the preliminary results that the fourth quarter declines were “slightly worse” than recent quarterly reports due to Massachusetts legislation slowing the foreclosure process leading to large delays in the timing of foreclosure revenues, a soft economic climate for small businesses due to fiscal cliff issues pulling back on advertising spend and increased sales force hiring and training to ramp up digital service products.

Ernst & Young LLP is the company’s independent registered public accounting firm for the year ending December 30, 2012.

Moelis & Co. and Milbank, Tweed, Hadley & McCloy LLP have been representing lenders and agent Gleacher in relation to the deal.

Fortress declined to comment. Gatehouse did not respond to request for comment by press time. - Max Frumes



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I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.