Moody’s Downgrades Journal Register Deeper Into Junk

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By: Mark Fitzgerald

Moody’s Investors Service downgraded Journal Register Company’s corporate debt rating two notches deeper into junk territory late Thursday on concerns the publisher of the New Haven (Conn.) Register is losing too much top-line revenue to cover its repayment obligations.

Moody’s lowered its Corporate Family rating to B3 from B1, and its Probability of Default rating to Caa1, which means “substantial risk of default” in its rating system, from the non-investment grade B2 rating. Moody’s also continued its negative outlook, meaning further downgrades are possible.

The downgrade was only the latest bad news for Journal Register, which announced earlier this week it may put itself up for sale and which reportedly is considering filing for bankruptcy. Its stock (NYSE: JRC) risks de-listing as it has traded for more than a month below $1 a share, hitting 16 cents after the announcement it was considering strategic options.

Before the Moody’s action was announced, Journal Register stock at the 4 p.m. EDT end of trading Thursday was at 28 cents a share, up 3 cents from the opening.

Approximately $755 million of Journal Register debt is affected by the rating.

Moody’s noted that Journal Register’s top-line revenues shrank 8.5% in 2007, and its liquidity is “eroding.”

“The negative outlook reflects Moody’s concern that Journal Register will generate insufficient free cash flow to cover its scheduled 2009 debt repayment obligations (absent an amendment), and that ratings may need to be lowered further if the company’s business operations and liquidity profile continue to deteriorate,” wrote Vice President and Senior Analyst John Price.

“Moody’s notes that debtholders are currently protected with only de minimus equity cushion (based upon the company’s current market value of around $11 million), and that a sale or liquidation of the company would likely result in less than full (albeit above-average) recovery for secured lenders.”

In announcing the hiring of Lazard Freres & Co. LLC to advise it on strategic options, Chairman and CEO James W. Hall said its 2007 cash flow of $90.3 million was “well in excess” of its $38.5 million interest expense. He also noted the company does not have to make principal payments until the second quarter of 2009.

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