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Platinum Equity, the new owners of the Union-Tribune, appear to be borrowing against the properties that they got for below-market prices as an inducement to take the paper this spring. On July 14, PNC Bank, as "agent for itself and other lenders," recorded a trust deed against three properties that Platinum got as part of the deal: the headquarters at 350 Camino de la Reina, Mission Valley; 5258-60 Anna Ave., and 5130 Avenida Encinas in Carlsbad. The deal was set up to secure a loan and revolving credit facility made to S.D. Union-Tribune, LLC, the takeover entity. No amounts were specified, according to the Reader's Matt Potter, who found the filing.

"It sounds like the old buy and breakup of the '70s -- the sum of the parts being worth more than the whole," says retired San Diego banker Peter Q. Davis. It also may be a case of shrewd timing. "I'm guessing these guys also figure interest rates are low, and not going any lower, with a good chance of soaring as the excess liquidity being created by government creates inflation." People who have watched the deal for the U-T have assumed all along that Platinum would try to flip the real estate that it got so cheaply, possibly including the headquarters, which it got for merely $35.5 million when the assessed valuation was $91.3 million. It is now trying to lease out the two top floors of the Mission Valley building. It may be awhile before it is able to vacate it, but there are rumors that it is looking for an outside company to print the paper.

Comments
20

Anybody surprised? this is playing out just as Don said it might.

July 21, 2009

Why pull the money out of the properties-low interest rate or not- especially on a line of revolving credit for the UT?

Maybe they are going to do more deal shopping.

July 21, 2009

Response to post #1: Private equity groups use leverage to maximize their returns on purchases. This may be another example of the strategy. Best, Don Bauder

July 21, 2009

Response to post #2: Platinum has reportedly committed itself to a new pagination system. Maybe it wants to borrow the money for this or some other operations-related purpose. Best, Don Bauder

July 21, 2009

Response to post #4: Don, are you trying to be a comic? Or did you just let that happen?

July 21, 2009

Response to post #4: I was just giving them the benefit of the doubt. Or the benefit of the debt. Best, Don Bauder

July 21, 2009

Platinum was trying to buy Delphi, the auto parts maker, for "a song." But they did need to come up with a little cash. Now the Delphi creditors have scuttled the deal because they were getting almost nothing out of the proposal. Maybe the borrowings were part of assembling funds for that scheme. Poor Platinum, foiled again!

July 22, 2009

Response to post #7: The auction for Delphi will now take place Friday. (See post above.) So we won't know if Platinum gets foiled, or gets what it wants, until then, and maybe not then, because it could be postponed again. In any case, Platinum is trying to get itself a juicy deal subsidized by the federal government. Best, Don Bauder

July 22, 2009

Re: the pagination system. According to my sources, which are pretty dang good, the new pagination system may not be everything it's cut out to be. The pagination system that was selected after a rather involved process before the sale to Platinum was nixed by the new execs. Instead, they're talking about getting an older, less capable system that is not receiving ongoing support and development but is cheaper. And it's not just that, they're also talking about stripping pieces off the cheaper system to make the price even lower. Basically, they're talking about replacing a 30-year-old front-end system with a 20-year-old front end system. If they're hoping on increasing productivity on the production side through a new computer system, they may be falling flat on their face with this one.

July 22, 2009

Response to post #9: If what you say is true, it is no surprise. Takeover artists rarely do necessary maintenance or capital spending unless they are forced to do so. Of course, the previous management was guilty of the same thing. It delayed and delayed and delayed the installation of a pagination system until the existing system was so antiquated that there was concern that the company couldn't get the papers printed. Best, Don Bauder

July 22, 2009

Doesn't the pressure on the old system decrease as the number of pages is reduced? The U-T, which I call "the incredible shrinking newspaper" gets smaller every week. Fewer pages equals less pagination workload, and less need to upgrade. Right?

July 22, 2009

I wonder how the North County Times is doing financially in comparison to the U-T. If they're smarter than Copley, and they're holding their own, I have to wonder how long it will take until we might see the San Diego Times...

July 22, 2009

Re: #11: It's not an issue of page count. The current system is not a pagination system at all. They use hot wax and box cutters. They need to upgrade because, at last check they can no longer purchase the necessary materials to continue operating the way they do -- companies don't make them any more. Also, if they were serious about saving money in the mid-to-long term, the pagination system would allow them to save money on supplies (by going direct to negative or plate) and getting rid of some people in the backshop.

July 22, 2009

Response to post #11: The problem was that the previous system was so ancient that the company had a hard time finding materials to keep it running. At one time it worried that it wouldn't get a paper out, according to good sources. Best, Don Bauder

July 22, 2009

Response to post #12: The parent of the North County Times, Lee Enterprises, is in terrible shape. It took on entirely too much debt to buy the St. Louis Post Dispatch. The North County Times's circulation has held up pretty well given the circumstances, but Lee does not say how it is doing financially. Best, Don Bauder

July 22, 2009

Response to post #13: That's a good explanation. Best, Don Bauder

July 22, 2009

The U-T, which I call "the incredible shrinking newspaper" gets smaller every week.

By Visduh

The LA Times has shrunk dramatically in the last year.

July 22, 2009

Response to post #17: What metro daily has not shrunk? Best, Don Bauder

July 23, 2009

They are shopping the printing of the paper around to other papers...leaving me to wonder if they are going to move out of the building in Fashion Valley.

July 26, 2009

Response to post #19: I have been saying almost since the announcement of the takeover that they would leave the Mission Valley headquarters. They are also trying to lease certain floors there -- they are juggling several scenarios. Copley Press paid Platinum to take the U-T by selling the real estate at a big discount. The juiciest possibility was the Mission Valley building. Platinum paid $35.5 million at a time the assessed valuation was above $90 million. Platinum got bargains on several other buildings it is trying to sell for higher prices than it paid for them in May. Mission Valley is the crown jewel -- the one that can be a very profitable flip. But the commercial real estate industry is in the dumps and sinking more deeply every day. That complicates the strategy. Suffice it to say that Platinum is likely to move the newspaper staff to cheaper quarters, either outsource printing or continue to print at the old plant for awhile, and at some point try to sell the MV building for a nice profit. Best, Don Bauder

July 26, 2009

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