Monday, April 20, 2009

Moody's says it may downgrade Gannett debt deeper into 'junk' status; more cuts needed to keep from violating lending pacts with debtors

Moody's Investors Service says that Gannett Co. Inc., owner of The Tennessean, has a big problem.

Its declining earnings are not going to be enough to pay off its debtors. Because of that, Moody's is downgrading its rating on the debt of the company and its ability to pay creditors without further action.

Such a rating tells buyers and holders of the company's debt that a company's ability to pay its debt is sinking further into trouble. And then a nasty word called "default" starts being thrown around in some circles.

That's why Gannett stock dropped a whopping 65 cents by 2 p.m. EDT. That's a whale of a drop considering the stock is only worth about $3 a share.

HOWEVER, Moody's believes Gannett will be able to meets its debt obligations with cash flow and further cost reductions.

Further costs reductions means you -- if you still subscribe or advertise with Gannett newspapers -- will be getting even less of a quality product.

AP reports:

NEW YORK (AP) -- Moody's Investors Service said Monday it may downgrade the ratings on newspaper publisher Gannett Co. Inc.'s debt further into "junk" status.

Moody's placed on review for possible downgrade the company's "Ba1" corporate family rating, "Ba1" probability of default rating and "Ba2" senior unsecured note ratings. All ratings are considered speculative grade.

The review stems from Moody's expectations for continued decline in advertising revenue, which will pressure the company's earnings going forward. Gannett, the publisher of USA Today and other titles, may be required to amend certain debt-to-earnings covenants in its bank credit facilities by the end of the year, Moody's said, to avoid a covenant violation.

Moody's said the company's free cash flow and cost reduction efforts should help it obtain an amendment to its loans.

Late last week, the McLean, Va.-based company reported a 60 percent drop in first-quarter profit as advertising revenue plunged. But results came in just slightly above analysts' expectations.

Gannett also pledged to use most of its cash flow to pay down debt, which stood at $3.7 billion at the end of March. The company's next big repayment, of $500 million, isn't due until 2011.

Moody's said about $1.56 billion in debt is affected by its action.

Newspaper publishers have been suffering from a sharp drop in advertising revenue, as the recession takes its toll on companies' budgets and more and more advertisers move to the Internet. Five other U.S. newspaper publishers have been driven into bankruptcy protection since December.

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