THE MORNING CALL, July 21, 2017

With a possible sale of the company on the horizon, Rodale Inc. is relying on the value of its Emmaus real estate and magazine titles to keep lenders at bay.

In late May, a few weeks before the private publishing company announced it was considering a sale of its business, Rodale pledged two of its properties in Emmaus to keep a 2015 bank loan in good standing, government records show.

Those moves bolstered a $35 million line of credit Rodale obtained from Buffalo-based Manufacturers and Traders Trust Co. (M&T Bank) two years ago by posting Runner’s World magazine, Women’s Health magazine as well as its main campus in Emmaus as collateral, according to Lehigh County mortgage documents and Uniform Commercial Code financing statements filed with the Pennsylvania Department of State.

In January, it put two of its Emmaus properties up for sale, asking for more than $4 million combined. And in the May transaction, Rodale agreed to turn over at least some of the proceeds of those sales to M&T Bank to ensure repayment of the loan, according to two mortgage documents.

Neither property has sold yet, but Rodale confirmed that it’s finalizing the sale of 1134 Pennsylvania Ave., a former school building converted into the Rodale Energy Center and Food Services. The company declined to comment on the specific mortgage transactions, but said it continually assesses and adjusts its real estate needs and continually engages with its banks on commercial lending needs.

While the mortgages securing the line of credit are public documents, the credit agreement is not. Commercial lenders who reviewed the mortgage documents said the moves suggest Rodale is tapping its equity in real estate to maintain cash flow while it tries to right a ship that media consultant Peter Kreisky says hasn’t been able to smoothly sail into the digital era.

“The entire industry has been under similar pressures, but some are in a better position than others to respond,” said Kreisky, of New York-based Kreisky Media Consultancy. “When like Rodale you’re neither a specialized publisher nor a massive player, then it’s all the more difficult.”

On June 21, the private publishing company, founded by J.I. Rodale in 1940, announced that it is exploring a range of “potential strategic alternatives” for its portfolio of lifestyle brands, up to and including a total sale of the business.

“They’re trying to position themselves in the best light possible, and with everything going on, M&T is trying to help them through this transition period,” said Jeff Barber, president of Lehigh Financial Group, a commercial mortgage brokerage firm that is not involved in the Rodale transactions and has not seen the credit agreement. “There’s good debt and bad debt, and it’s better for Rodale to have mortgage debt on its books than delinquencies.”

M&T Bank did not respond to a request for comment.

In general, banks look to take additional collateral on existing loans to feel comfortable about keeping the existing loan in place, said John Hayes, executive vice president and chief lending officer of New Tripoli Bank, who also is not involved in the Rodale transactions and has not reviewed the credit agreement.

In doing so, a bank is “acting to protect itself against a few things here: that the existing collateral value has dropped, or that the risk profile of the customer increased in that the customer may have trouble making their loan payments in the future,” he said.

Rodale said in January that it was selling the Pennsylvania Avenue property and 554 North St., a two-story former silk mill converted to offices, so it could centralize employees at its main campus. The asking price for the North Street property was $3.42 million. The asking price for the Pennsylvania Avenue property was $825,000.

Rodale obtained the $35 million line of credit in June 2015 by taking out a mortgage on its main campus property at 400 S. 10th St., which has an assessed value of $16.5 million. According to the Uniform Commercial Code financing statement filed at the time with the Pennsylvania Department of State, Rodale also pledged all “business and assets” associated with Runner’s World magazine and Women’s Health magazine, among other property.

It’s not clear how much Rodale has drawn from the line of credit.

But M&T, aware that the publishing company was selling properties, likely required the additional property liens after a regular review of the credit agreement and Rodale’s ability to repay its debt, Barber said. The additional liens reduce M&T’s risk of loaning to Rodale and enables Rodale to keep up with other bills, crucial at a time when potential buyers are reviewing its finances.

Rodale’s board of directors has hired New York investment bank Allen & Co. to assist in the review process. Rodale said in June that its board could sell the company as a whole or sell “select properties, groups of properties or individual businesses.” The board also may opt not to sell, and continue to implement its business plan.

As of last year, Rodale had 450 employees in the Lehigh Valley and 700 total.

The moves continue major high-level shakeups and turnover for Rodale in recent years as it grapples with disruptions to the print media business model. In addition to Runner’s World and Women’s Health, Rodale publishes Men’s Health, Prevention, Bicycling and Organic Life magazines. It also operates Rodale Books and an e-commerce company called Rodale’s.

The publishing company generated revenue between $300 million and $350 million in 2015, down from more than $600 million in 2008, The Wall Street Journal reported.

Kreisky said Rodale has struggled to adapt from its position as a medium-sized player in the legacy media industry. Bigger competitors have the firepower to attract talent and make the necessary investments to thrive in a digital-first world, while smaller niche publishers have more leeway to focus on serving an extremely loyal audience, he said.

While unfamiliar with the specifics of Rodale’s finances, Kreisky said the growing pressure to move aggressively in one direction or the other is likely related to pressure from Rodale’s lenders. When a company can’t clearly demonstrate its ability to produce the cash needed to cover both operating costs and interest payments, he said, lenders usually put enormous pressure on the company to renegotiate the terms of a loan.

“Someone like Rodale has to consider either merging with a larger media company so it can shed operating costs, or it has to become more specialized, which probably means shedding some of its titles and focusing on enthusiast segments of the market,” he said.

Media giant Meredith Corp. has expressed interest in pursuing Rodale brands. Dave Zinczenko, a Lehigh Valley native and former Rodale executive, also is in the hunt. American Media confirmed that its CEO, David J. Pecker, intends to pursue Men’s Health.

If Runner’s World and Women’s Health were among the properties sold, M&T would be required to release its lien against those assets but would be in control of the proceeds of the sale, subject to any stipulations in the credit agreement, Hayes said.

In the last two years, Rodale has sold a half-dozen properties, including one along East Minor Street that Emmaus bought for nearly $3 million and is converting into its borough hall and municipal campus.

According to county records, the company still owns 16 parcels in and around Emmaus. Many are small pieces of land worth less than $100,000, but combined the properties are assessed at more than $23 million. Developers Bill Wall and Tom Walsh told Emmaus Borough Council last week that they have an agreement of sale with Rodale on a 10-acre South Mountain parcel where they hope to build town houses. It’s assessed at more than $700,000.

The company has also put up for sale a 10-acre parcel of vacant land along Pennsylvania Avenue.

Rodale Inc. and its subsidiaries are listed as debtors on more than two dozen UCC financing statements filed with the Pennsylvania Department of State over the last five years. According to those documents, Rodale primarily owes money to financial services companies such as Macquarie Equipment Finance.