By: Mark Fitzgerald Moody's Investors Service on Monday praised the agreement The McClatchy Co. reached with its creditors, but kept its junk ratings on debt of the nation's third-largest newspaper publisher and warned a further downgrade is possible.
This weekend, McClatchy disclosed it had agreed to amendments to its $1.175 billion bank credit facility that eases the allowable leverage and interest coverage ratios, while raising interest rates and providing more collateral security for its creditors.
"The increased covenant cushion generated by the amendment favorably
improves McClatchy's ability to manage the difficult revenue environment
in its markets," Moody's analysts John Puchalla and Alexandra Parker wrote.
Under the agreement, McClatchy's debt-to-EBITDA (earnings before interest taxes, depreciation, and amortization) was increased to 6.25 times through the end of 2008, and to 7.00 times from March 2009 through September 2010. The EBITDA-to-interest covenant was reduced to 2.25 times through March 2009 and 2.00 times thereafter.
Moody's Monday confirmed its previous rating of "Ba2" for the bank credit facility, a below-investment grade rating. He also assigned a SGL-4 "speculative-grade" rating on its liquidity.
"Moody's nevertheless continues to maintain an SGL-4 liquidity rating on McClatchy because continued significant revenue pressure and the level of uncertainty that a tight credit environment creates for closing on signed asset sale agreements could diminish the company's ability to meet the revised covenants in the second half of 2009," the analysts wrote.
"However, Moody's believes the company has sufficient cash and stressed free cash flow to meet its obligations over the next 12 months including the $50 million remaining notes that mature in April 2009," the ratings service added.
Moody's changed its outlook to negative.
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