Gannett Loses Its S&P 'A-' Credit Rating: Industry Slump Hurting Even Best-Regarded Chains

By: Mark Fitzgerald Standard & Poor's Ratings Services cut Gannett Co. Inc.'s corporate credit rating and senior unsecured debt rating to "BBB+" from "A-," further evidence that the newspaper industry slump is affecting the credit ratings of even the best-regarded publishers.

With a debt load considerably lighter than most of its peers, Gannett had maintained top credit ratings even as the bonds of other publicly traded newspaper companies fell into junk territory or teetered on its edge.

S&P also assigned a negative outlook to Gannett debt, suggesting the rating could fall further.

"The downgrade of the long-term ratings reflects a worsening pace of decline in year-over-year advertising revenue at the company's newspaper publications so far in 2008," S&P credit analyst Emile
Courtney said. "The slowing U.S. economy will likely continue to exacerbate operating weakness at Gannett, and this comes at a time when the company and the newspaper industry in general have experienced prolonged operating weakness due to a secular shift in revenue away from print advertising."

But Courtney added S&P continues to regard Gannett's "business profile as investment grade, largely because of a geographically diverse portfolio of newspapers, about 83% of EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2007, and television broadcasting properties, as well as the company's healthy internal cash generation and high EBITDA margin in the high-20% area."

S&P said its target for total debt to EBITDA is 2.5 times, and said Gannett's ratio as of March was 2.3 times, "and we expect it to improve closer to the 2.0x area by the end of 2008 due to debt repayment, notwithstanding our belief that revenue and EBITDA could decline by a high-single-digit percentage in 2008."

S&P added that it had assigned the "A-" rating on expectations that Gannett's newspaper revenue would not slip more than by a mid-single-digit percentage in 2008. But it noted newspaper publishing revenue, including online, was down 10% as of April.