By: Mark Fitzgerald Gannett Co. Inc.'s debt remains investment-grade -- barely -- after Moody's Investors Service Monday downgraded the nation's largest newspaper company credit rating one notch.
Moody's downgraded Gannett senior unsecured debt to Baa3, its lowest-investment grade rating, from Baa2. It also ratcheted down the rating on Gannett commercial paper -- unsecured obligations issued for short-term cash needs -- to Prime-3 from Prime-2.
Moody's also put the ratings on review for another downgrade -- which would put the company into junk, depressingly familiar credit territory for many of its newspaper peers, including The New York Times Co.
A junk rating would cut Gannett's access to investment from important sources of funds that will not buy debt that is not investment-grade rated.
Moody's downgrades ratings indicate that even a newspaper company that is universally well-regarded for its ability to handle debt are regarded as suspect because of this brutal industry downturn.
"The downgrade and continued review were prompted by the ongoing and deepening declines in Gannett's revenue and Moody's expectation that 2009 will be incrementally challenging for the company's newspaper and broadcast operations," Moody's Vice President and senior analyst John E. Puchalla said. "Moody's is concerned that Gannett's free cash flow, while still positive, is deteriorating rapidly from very strong historical levels despite revenue-enhancement initiatives and cost reduction efforts."
Late last Friday, Standard & Poor's said it had placed Gannett on a "CreditWatch with negative implications," suggesting a downgrade of its minimum investment-grade rating.
Gannett will no doubt feel more pressure to cut or even suspend its dividend. Both ratings services pointedly said their reviews would consider dividend policy.
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