US CREDIT-CDS market signals concerns about McClatchy
NEW YORK, Feb 23 (Reuters) - McClatchy Co has won some breathing room with a major debt refinancing, but its credit protection costs remain high, signaling that investors have lingering questions about the newspaper publisher's future.
McClatchy's (MNI.N) five-year credit default swaps tightened 80 basis points to 859 basis points on Jan 27 when the publisher reported encouraging fourth-quarter results and announced an $875 million note offering to pay down bank debt and bonds.
The transaction reduces looming debt maturities in 2011, leaving 2013 as the next deadline for significant debt coming due. That will give McClatchy more time to reap the benefits of a strong cost-cutting drive and continue its shift to online from print revenues.
But McClatchy's swaps have retraced all of January's strengthening and are now 157 basis points wider than when its refinancing was announced, at about 1016 basis points as of Tuesday, according to data from Markit.
"I think the market is smart enough to know that there are some fundamental issues here and what they've done is basically delayed the inevitable," said Shelly Lombard, analyst at independent research service Gimme Credit.
McClatchy has done a great job of cutting costs and cleaning up its balance sheet, but "I think people are still concerned and rightly so about the long-term viability of the newspaper industry," Lombard said.
Rating agency Moody's Investors Service is also cautious about McClatchy's long-term future. Though Moody's raised McClatchy's ratings after the refinancing, the agency warned that the company's leverage is still unsustainable, creating elevated risk of a restructuring over the long term.
Publisher of the Sacramento Bee and Miami Herald, McClatchy became the second-largest U.S. newspaper chain in 2006 with its purchase of Knight Ridder Inc. But the acquisition also increased the publisher's leverage, resulting in a downgrade to junk status from investment grade.
McClatchy has relieved much of the immediate pressure from its debt load. By refinancing bonds and bank debt and extending maturities on a credit line, the company has reduced funded debt maturities in 2011 to $75 million from $1.05 billion, according to Moody's.
Some analysts also expect McClatchy to benefit from a recovering economy, which could slow the revenue declines of the recent past.
CreditSights, for example, assigned an overweight recommendation to McClatchy after its refinancing announcement. In a report, CreditSights analyst Jake Newman said McClatchy's results could be helped by its cost cuts of the past year and lower newsprint prices.
While secular trends in the newspaper industry still point to declining revenues, "these should be more moderate than those of the recession and, for the coming 12 months, perhaps easier to address," Newman said.
Lombard said she does not expect a wave of selling in McClatchy's bonds, but neither should investors expect gains.
Despite the fact that McClatchy's online revenues are growing rapidly, they are still a small portion of its overall business and are not expanding quickly enough to replace newspaper revenue, she said.
On the positive side, Lombard said she does not expect McClatchy to run into problems for at least 18 months and probably two years, and investors can collect their coupons until then.
But if revenues are still declining as the economy recovers, "you've got a lot more uncertainty than people are factoring in even now," she said.
(Reporting by Dena Aubin; Editing by Dan Grebler)
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