April 24, 2009 / 4:46 PM / 8 years ago

UPDATE 1-Moody's cuts New York Times, McClatchy debt ratings

(Adds details on McClatchy ratings cut)

NEW YORK, April 24 (Reuters) - Moody’s Investors Service on Friday cut its debt ratings on U.S. newspaper publishers McClatchy Co MNI.N and The New York Times Co (NYT.N) as a plunge in advertising revenue intensifies the struggles to keep their businesses healthy.

Moody’s downgraded the Times Co’s corporate family and unsecured debt ratings and also downgraded McClatchy’s corporate family rating and probability of default ratings.

When ratings agencies lower their ratings on company debt, it becomes more expensive for those companies to borrow money for normal operations and any other purpose.

Moody’s downgraded the Times’ corporate family rating and unsecured debt one notch to B1, or four notches into speculative grade, or “junk” status.

The agency’s negative outlook means it might downgrade those ratings again in the next 12 to 18 months.

Moody’s said it is likely that “the severity and duration of ongoing deterioration in newspaper advertising will continue to pressure the company’s revenue and operating cash flow,” said John Puchalla, lead author of the report.

The agency believes the Times’ earnings before interest, taxes, depreciation and amortization, or EBITDA, will decline by 35 to 37 percent in 2009 and expects only modest improvement in 2010.

This will increase the company’s debt-to-EBITDA ratio to a seven to eight times range over the next several years, from 6.6 times for the 12 months ended in March.

The company’s difficulty in reducing its debt to EBITDA ratio below six times is the primary concern driving Moody’s negative outlook. Moody’s said its outlook for the Times might stabilize if the company pays off enough debt and the decline in ad revenue eases.

On Tuesday, the New York Times reported a quarterly loss due to a 27 percent drop in advertising revenue and poor performance at The Boston Globe, which might close this year. For more click on [ID:nN21335451].

For McClatchy, the Sacramento, California-based publisher of The Miami Herald and more than two dozen other daily papers, Puchalla said Moody’s sees an increased risk it might violate its borrowing terms and said that company could be restructured in the next two years.

Moody’s expects EBITDA to fall about 30 percent this year, putting its debt-to-EBITDA leverage “at a very high level.”

Still, Moody’s said McClatchy likely will maintain positive free cash flow in 2009, something Chief Executive Gary Pruitt also told analysts on a conference call on Thursday to discuss first-quarter financial results.

On Wednesday, Standard & Poor’s lowered its credit rating on the New York Times’ unsecured debt on concerns about the grim outlook for revenue. (Reporting by Tom Ryan and Robert MacMillan; Editing by James Dalgleish)

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