By: Mark Fitzgerald
Standard & Poor’s Ratings Services has lowered its corporate credit rating on MediaNews Group Inc. two notches to ‘CCC,’ deep in junk bond territory and four notches above a default rating.
S&P also asserted that continuing cash flow reductions could push the publisher of The Denver Post and more than 50 other dailies into violation of its loan covenants.
“Moreover, we believe that the company is unlikely to maintain its current capital structure over the long term,” S&P stated. “At the current rate of cash flow decline, it appears increasingly likely that MediaNews will pursue a restructuring of some kind over the intermediate term.”
In a statement, MediaNews President Joseph “Jody” Lodovic said, “We are in compliance with all our debt agreements and expect to stay in compliance in the future.”
S&P also issued a negative rating outlook, signaling that further downgrades are possible.
The ratings firm assigned a “2” rating to the newspaper chain’s senior secured credit facilities, reflecting its belief that lenders can expect to recover a substantial amount of their debt — from 70% to 90% — in the event of a payment default.
But S&P at the same time lowered its issue-level rating of MediaNews subordinated debt two notches below its corporate credit rating to ‘CC,’ and assigned a recovery rating of “6,” indicating that lenders can expect “negligible recovery,” from nothing to 10% of their loans in the event of a payment default.
“The downgrade of the corporate credit rating to ‘CCC’ reflects our expectation for a meaningful year-over-year increase in the rate of cash flow decline in 2008,” said S&P credit analyst Emile Courtney. “In addition, the company may not be able to avoid violating covenants in the company’s bank facility over the near-to-intermediate term without recurring liquidity-enhancing transactions with its business partners.”
In April, MediaNews amended its arrangements with its lenders, and is no longer required to file financial statements with the Securities and Exchange Commission.
“We do not anticipate that the company will publicly announce future liquidity enhancement actions, nor is it likely to announce cash flow trends,” S&P said.