S&P: Morris Publishing May Be Mulling Bankruptcy to Unload Debt; Tribune Downgraded Again

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By: Mark Fitzgerald

Standard & Poor’s Ratings Services Friday said it is “concerned” Morris Publishing Group may file for bankruptcy to reduce its debt.

In separate actions Friday, S&P downgraded Morris and Tribune Co. and Morris deeper into junk territory — and warned that lenders should expect to see little or no money in the event they default on some debt.

S&P was harshest on Tribune Co., which has about $11.8 billion in long-term debt, much of it taken on to swing the going-private deal engineered by Chicago real estate mogul Sam Zell. S&P gave both Tribune’s senior unsecured and subordinated debt issues a rating recovery of 6, a rating it says indicates “that lenders can expect negligible (0% to 10%) recovery in the event of a payment default.”

S&P rated that Tribune debt as CC, which is two notes lower than the CCC corporate credit rating it assigned Tribune earlier this week — while warning the corporate rating could be lowered further. By S&P’s definition, a CC rating means the debt “is currently highly vulnerable to nonpayment.”

S&P rates Tribune’s secured debt as CCC, indicating a company is not likely to be able to meet its financial commitments in a period of adverse economic conditions.

On Morris, S&P lowered the corporate credit rating to CCC from CCC+. It also lowered its recovering rating on Morris senior secured credit facilities to 2 from 1. The new rating means lenders should expect “substantial recovery” of money — from 70% to 90% — in the event of a payment default.

But S&P warned that lenders can expect little or no recovery if Morris defaults on its subordinated debt, assigning a recovery rating of 6. The rating of the subordinated debt was lowered to CC from CCC-.

“The corporate credit rating downgrade reflects our concern that, even with the covenant relief provided in the most recent executed amendment, the company will be unable to sustain its current capital structure over the next several quarters,” S&P credit analyst Liz Fairbanks said in a statement.

As E&P reported on its Fitz & Jen blog, the amendment stipulates that Morris must sell, or begin the process of selling, enough assets to prepay all its loans under the credit agreement, or refinance the facility. Augusta, Ga.-based Morris is the publisher of 13 dailies, including The Florida Times-Union in Jacksonville.

On a conference call with analysts about its third-quarter earnings, S&P said, “the company gave no indication that it was negotiating the sale of any assets; our ratings, therefore, do not incorporate the expectation that the company will consummate a transaction that will generate funds to repay the credit facility. We are concerned that the company may file for bankruptcy protection to reduce its debt outstanding.”

A company spokesman was not immediately available for comment, his office said Friday afternoon.

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