(The following was released by the rating agency)
SYDNEY (Standard & Poor's) Dec. 17, 2012--Standard & Poor's Ratings Services said today that its ratings and outlook on Fairfax Media Ltd. (BB+/Negative/--) were not immediately affected by the company's announcement that it will sell its 51% ownership in New Zealand-based Trade Me Group Ltd. (Trade Me; not rated).
Fairfax expects to receive gross sales proceeds of A$616 million, which will be applied to reduce debt. Although the sale will facilitate a material reduction in the group's debt levels and improve liquidity, rating stability remains reliant on Fairfax successfully addressing the key structural challenges in its core publishing operations.
This will be critical to maintaining our "fair" business risk profile assessment on the group, particularly given Trade Me represented an attractive and high growth part of the group's operations. In this regard, key factors for assessing the group's success in addressing these structural challenges will include the introduction of an effective online pay model for its metropolitan mastheads, together with reducing the cost base of its structurally declining metropolitan print operations in a timely and effective manner.
As a result of the Trade Me sale, we have revised our forecast EBITDA (from continuing operations) for year ending June 30, 2013, to A$315 million-A$335 million, from A$410 million-A$430 million. We believe if Fairfax can effectively execute its cost reduction programs, and revenue in its metro newspaper business does not fall rapidly, it will continue to generate sufficient free-operating cash flow (after capital expenditure) to maintain fully adjusted debt to EBITDA (from continuing operations) of about 2x in the next two years.
We consider these financial ratio expectations, together with a fair business risk profile, as consistent with the 'BB+' rating.