New York Times Co. Bonds Now Junk, Moody’s Declares

By: Mark Fitzgerald

Moody’s Investors Services downgraded The New York Times Co. debt to “junk” levels Friday.

Times Co.’s “corporate family rating,” as well as the rating on its senior unsecured debt was lowered to Ba3 — three notches below investment grade — from Baa3, Moody’s lowest investment-grade rating.

And Moody’s assigned a speculative-grade rating to Times Co. liquidity, despite the $250 million loan from Mexican billionaire Carlos Slim Helu announced earlier this month.

Times Co. commercial paper, the short-term securities used for operating costs, was downgraded to Not Prime from Prime-3. Moody’s said it was withdrawing its ratings for Times commercial paper.

The slide into junk may not be over, Moody’s added by assigning a negative outlook, suggesting a further downgrade is possible.

“The downgrade reflects Moody’s expectation that ongoing deterioration in newspaper advertising revenues will continue to place significant downward pressure on [The Times Co.’s] EBITDA (earnings before interest, taxes, depreciation and amortization) despite aggressive cost management, and that the earnings decline along with a significant increase in the underfunded pension liability will weaken credit metrics considerably,” said John Puchalla, Moody’s vice president and senior analyst.

Moody’s estimates that Times Co. revenue will fall by about 10% in 2009 and EBITDA will plunge 30% to 35%.

“In Moody’s opinion, earnings pressure and higher cash interest costs will
limit free cash flow generation in each of the next two years notwithstanding a significant reduction in capital spending, and the recent 74% cut in the dividend,” Puchalla said.

Times Co.’s debt-to-EBITDA leverage ratio will jump to more than 6 to 1 for the next two years, a fairly high level. But Moody’s added it expects to pay debt down relatively quickly.

The full Moody’s report is posted on E&P’s business-oriented Fitz & Jen blog.

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