New York Times smartly joins refinancing fiesta

November 2, 2010

You know the global refinancing fiesta is raging when a newspaper publisher can join in the fun. The New York Times is paying just 6.6 percent on $225 million of debt sold Monday. A good chunk should help repay Carlos Slim Helu—the Mexican billionaire who lent a similar amount at a hefty 14 percent when no one else would. That said, the publisher has already paid plenty for the favor.

Slim swooped in to help out the Times in January 2009. Not only did the newspaper’s prospects look dim at the time. The global financial system was on its knees. As a result, some thought Slim had a bigger motive in mind, namely becoming a newspaper mogul. In hindsight it looks as if Slim was simply, and smartly, in it for the money.

At the 14 percent interest rate, the $250 million loan would have paid out roughly $70 million in just two years. Slim’s Banco Inbursa and Inmobiliaria Carso, which arranged the loan, stand to earn a prepayment fee should the Times pay back the debt before it matures in 2015, according to the original terms of the deal.
Moreover, the deal awarded Slim’s businesses 15.9 million in Times stock warrants. With a strike price of around $6.36, the warrants are in the money to the tune of about $21 million.

Now, The New York Times has the Federal Reserve to thank as much as Slim for the turnaround in its financing fortunes. Rock bottom interest rates and a booster shot of promised quantitative easing have convinced investors to open their wallets. Indeed, the company raised around $25 million more than it had originally anticipated.

With markets this robust it’s hard to believe The New York Times will be the only company looking to reduce expensive crisis-era funding with cheaper stuff. After all, far healthier firms like Goldman Sachs and General Electric are paying similarly hefty dividends on preferred stock to Warren Buffett. This is a party they’d be crazy to miss.

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