(Adds details on McClatchy ratings cut)
NEW YORK, April 24 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
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