As a result, senior lenders blocked the company's interest payments to $85 million in junior loans held by another group of lenders. That's because senior lenders, who hold at least $295 million in loans, want to preserve the company's cash for repayment of its own loans.
Philadelphia Media Holdings is in talks with senior lenders to obtain a two-year relief from the required debt-to-cash flow ratio, which is a measure of a company's financial health. However, the company likely will end up paying a higher interest rate on its loans as result, said Chris Donnelly, an S&P vice president.
As for its junior debt, the company is in talks to pay the interest in kind instead of cash.
Donnelly said it means the interest payment will be added to the principal loan amount of $85 million. However, that means future interest payments will be higher because of a bigger principal.
"This is a pretty serious situation," he said. "The company is struggling."
Philadelphia Media Holdings is also seeking an equity infusion of about $8 million.
A group of investors led by former advertising executive Brian Tierney bought the two papers for $562 million in June 2006 from McClatchy Co.
A call to the company was not immediately returned.
