The writing is on the wall now. Journal Register (JRC) is almost certainly worth less than its debt and market cap combined. The company’s debt stands at $642 million as of the end of the September quarter. The company’s stock market value is $79 million.

JRC’s stock is down almost 75% this year. That compares to another company, McClatchy (MNI), which is off about 68%. The New York Times (NYT) received a "sell" rating yesterday. Its shares are down 30% for the period.

Newspaper revenue in general is dropping 8% quarter-over-last-years-quarter. For the last quarter JRC  reported revenue was $113 million, and operating income was almost $18 million. But interest and other costs were almost $11 million.  If revenue is down to $104 million in Q3 2008, the company may not make debt service.

The company has an incremental debt facility, but drawing down on that only further complicates JRC’s chances of handling its debt service. In the current credit markets refinancing debt on more favorable terms is unlikely.

The value of the JRC properties is going to continue to drop. This has nothing to do with them individually. Most newspapers are losing value, no matter who owns them. The chance to get out of the newspaper business in not likely to improve.

What can the Journal Register get for its papers? In 2006, peak EBITDA multiples for newspaper sales hit about 11x. Dow Jones (DJ) was able to sell some of its papers based on that level of valuation. But, the condition of the JRC papers is getting worse each quarter and multiples in general for newspapers are falling fast.

The JRC Michigan newspaper group is doing so badly that the company would be lucky to get a blended 8x EBITDA value for its businesses. EBITDA was $22.5 million in the last quarter. Holding that level going into next year will be extremely difficult.

At a multiple of eight times, JRC might sell its properties for a total consideration of $640 million. At that level, the common shareholders would be left with nothing. But, with a $2 stock price, they don’t have much to lose now.

Sell now. Selling later will only be worse.

Douglas A. McIntyre

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