US CREDIT-NY Times risks junk territory as industry flails

By Karen Brettell

NEW YORK, Oct 2 (Reuters) - Negative ratings actions on
newspaper publishers Gannett Co (GCI.N) and McClatchy Co
(MNI.N) may bode badly for the New York Times (NYT.N), which
risks being cut into junk territory due to the same industry
pressure that is hurting its competitors' ratings.

Standard & Poor's on Wednesday placed its ratings on USA
Today publisher Gannett on review for downgrade from
"BBB-plus," the third lowest investment grade. The agency cited
concerns over its revenue and earnings prospects due to
declining advertising revenues.

The rating agency also cut McClatchy, which publishes
papers including the Sacramento Bee and Miami Herald, deeper
into junk territory on Monday, citing the same concerns.

"S&P's comments are macro in tone," analysts at Barclays
Capital said in a report on Thursday. That "increases the
probability that Moody's and S&P could lower New York Times'
(NYT) ratings to sub-investment grade in the very near term."

Rating cuts below investment grade can significantly
increase a company's borrowing costs.

Standard & Poor's has the Times on review for downgrade
into junk, where it was placed in July after the company posted
a lower profit for the second quarter due to a 12 percent slide
in newspaper advertising.

Moody's Investors Service also rates the publisher the
lowest investment grade with a negative outlook, indicating a
downgrade is likely over the next 12 to 18 months. The Times is
scheduled to report third quarter earnings on October 23.

In spite of its lower rating, and the risk of junk status,
the Times' credit default swaps are trading tighter than those
of Gannett.

The cost to insure Gannett's debt with credit default swaps
rose to a record 439 basis points on Thursday, or $439,000 per
year for five years to insure $10 million in debt, compared
with 383 basis points a week ago, according to Markit
Intraday.

The Times, by comparison, jumped to 415 basis points on
Thursday, from 377 basis points a week ago.

The credit quality of newspaper publishers has been
steadily eroding as they grapple to make up lost newspaper
advertising revenues with online ventures.

Concerns about their ability to stem these advertising
declines is increasing as the economy worsens and risk aversion
across credit markets is making it more difficult and costly to
raise new debt. The companies also risk breaking terms in
existing credit agreements as their credit ratios deteriorate.

McClatchy said on Friday it had amended its $1.8 billion
credit agreement with its lenders to allow more flexibility in
its covenants.

S&P noted, however, that continuing erosion in the economy
could pressure the publisher's earnings and push it close to
violating the new terms in the second half of 2009.

The Times, meanwhile, may face stricter terms on its credit
facility when it matures in the first half of 2009, Barclays
said.

The bank recommends covering short positions on Gannett and
moving the positions onto the Times, "given a likely/possible
near-term downgrade to high yield and potential for notched
ratings if/when NYT refinances its credit facility."

Times spokeswoman Catherine Mathis said the company has
"sufficient capacity under our existing credit facilities to
easily service our debt." She declined further comment.

(Additional reporting by Robert MacMillan in New York,
Editing by Chizu Nomiyama)