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UPDATE 1-S&P slashes New York Times rating to junk
October 23, 2008 / 9:35 PM / 9 years ago

UPDATE 1-S&P slashes New York Times rating to junk

(Adds action by Standard & Poor‘s, rewrites throughout)

NEW YORK, Oct 23 (Reuters) - Standard & Poor’s on Thursday slashed its ratings on the New York Times Co (NYT.N) into junk territory and cited concerns about the newspaper publisher’s revenue outlook, after it posted a third-quarter loss.

Moody’s Investors Service also said it may follow the move, adding the publisher faces risks in refinancing its debt.

The New York Times posted a quarterly loss from continuing operations on Thursday and said advertising revenue at its news media group dropped 16 percent for the quarter. For details, see [ID:nN23398087]

S&P said a likely U.S. recession will exacerbate declining advertising revenues and prolong the time until the declines will be made more manageable, possibly until 2010.

Until advertising declines are moderated the publisher will not be able to execute revenue strategies and cost cutting measures that are key to stabilizing its earnings, the rating agency added.

“It is our estimate that the company’s total revenue will decline in the mid-teens percentage area in 2008 year over year, and that earnings before interest, taxes, depreciation and amortization (after buyout expenditures) will decline by more than 30 percent in 2008 and by about an additional 30 percent well into 2009,” S&P said.

It cut the Times’ rating three notches to “BB-minus,” three levels below investment grade, from “BBB-minus.” The outlook is negative, indicating an additional cut may be likely over the next one-to-two years.

Moody’s said it may cut the company from “Baa,” the lowest investment grade.

Rating downgrades into junk territory can substantially increase a company’s borrowing costs.

Newspaper advertising market conditions are likely to remain challenging in 2009 and continuing revenue declines will make it difficult for the company to bring its credit metrics in line with its investment-grade rating, Moody’s said in a statement.

It will also make it hard for the publisher to execute its plans to improve liquidity, Moody’s added. Risks from refinancing maturing debt also prompted the review for downgrade, the rating agency said.

The Times said it is looking for ways to reduce its debt, but said it is a difficult time to make asset sales.

The cost to insure the company’s debt with credit default swaps rose to 501.5 basis points on Thursday, or $501,500 per year for five years to insure $10 million in debt, from 460 basis points on Wednesday, according to Markit Intraday. (Reporting by Karen Brettell; Editing by Diane Craft)

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