By Jan Norman
Freedom Communications Inc., the Irvine, California-based owner of the Portales News-Tribune, will put off plans to buy out its private equity partners until spring or summer because borrowing costs are too high now, Chief Executive Scott Flanders said Thursday.
“The credit markets will drive the timing,” Flanders said. “The company is committed to maintaining a capital structure that avoids putting us in a position where we weaken the value of our franchise.
That’s the important reason this deal didn’t happen this year.”
To return sole ownership to the Hoiles family, Freedom will have to repay at least the $450 million Blackstone Group LP and Providence Equity Partners have put into the company plus a return on investment that is part of the negotiation, Flanders said.
A deal was almost done a few weeks ago, Flanders said. “GE Capital had agreed to finance the cost of the borrowing, but the cost became too high.” In the credit market turmoil last summer, the interest rate increased a percentage point, which would raise the borrowing cost a minimum $10 million a year, he said.
Both Flanders and Freedom Chief Financial Officer Doug Bennett said they don’t expect the credit markets to settle down to the point that the deal will again be affordable until early summer 2008.
Bennett added, “The company has to raise the capital but it’s what the family is willing to pay to buy back the shares. The deal was getting so expensive that we said, ‘Let’s concentrate on our business and come back on this in the spring.’”
Blackstone and Providence representatives could not be reached for comment.
The two private equity firms jointly purchased a 45 percent stake in 2004. The deal allowed some members of the Hoiles family to sell their shares in the media company, which owns Web sites, newspapers and television stations.
After the Blackstone/Providence deal, Freedom had about $1 billion in debt and has since paid off $300 million, Flanders said.
The remaining family owners always intended to buy out Blackstone and Providence, Flanders said.
The partners can require that they be bought out in 2009, but Flanders said he always expected that transaction would be negotiated.