Will the Bondholders be Pinch Sulzberger's Achilles Heel

The American Thinker reports:

Shielded by a two class system of shareholding allowing his family to elect a majority of the board of directors, New York Times Company CEO Pinch Sulzberger's hold on his job hasn't depended on keeping ordinary shareholders happy. That's why the loss of 60% of the shareholders' market value hasn't resulted in him losing his job, even as the company's stock once again hit new lows last week.

This may trigger more unrest among shareholders like the fruitless showdown earlier this year with Hassan Esmasry of Morgan Stanley. Morgan Stanley's agitation was not only driven by the under-performance of the stock but likely by an interest in transaction fees for taking the company private at the peak of the media private equity craze. In the end, there was no reason for the Sulzbergers to give up the already sweet arrangement of super voting shares in exchange for the hassles of high leverage and demanding new private equity holders, presumably with greater influence than the helpless Class A shareholders unable to vote in a majority on the board.

Alas, the private equity window is probably closed for now, so that's no longer an option.

After Morgan Stanley's run at it, the Sulzbergers' super voting share arrangement would seem to be pretty bullet proof. But while ordinary shareholders may have no recourse, the bondholders just may. The Times may be bullet proof, but it ain't impregnable.

The New York Times Company has almost $1 billion in long term debt and revolving credit lines outstanding.

The shorter term revolver debt is trading at a discount, yielding 9%+ interest with a coupon below 5%. The most recent trades of the long term debt show a premium spread approaching 1% on a 4.5% coupon. The pricing for all debt classes is still in the low to mid 90 cents per dollar range. This indicates the market is demanding a premium over the coupon, but these prices would not be considered distressed.

But recently, bondholders have become much more aggressive enforcing non-monetary default covenants. Beazer Homes is being pounded by bondholders for missing report filing deadlines. Of course, the Wall Street jackals' real motivation is to pressure Beazer to take them out at a premium or, save that, get control of the company in bankruptcy.

Non-monetary defaults are promises for such things as making certain reports on a timely basis or meeting minimum net equity requirements. The Times discloses that their credit agreements have a minimum net equity requirement of $652 million in the most recent quarterly SEC filing. The previous annual filing showed a net equity requirement of $618 million and this covenant was waived. As of July 1, 2007, the New York Times Company shows net equity of $876 million, leaving them just a $224 million cushion.

Check out this monthly chart of the New York Times stock.Check out this chart of the New York Times vs. the S&P 500.Can you say long term under performer? I guess that's Pinch's best defense, he can say he's not the only Sulzberger to under perform the S&P 500.