Moody's: McClatchy's $2.2 Billion Debt Load 'Becoming Unsustainable'

By: Mark Fitzgerald Moody?s Investors Service declared Friday that The McClatchy Co.?s $2.2 billion in debt is ?becoming unsustainable? -- and could force it to breach its lending agreements or seek restructuring.

Moody?s downgraded McClatchy?s Corporate Family Rating and Probability of Default ratings to Caa1 from B2. The new lower rating signifies ?very poor quality? debt, and is four notches above Moody's lowest rating of C, or default.

?The downgrade reflects Moody's concern that McClatchy's high and increasing leverage is becoming unsustainable and that there is heightened risk that continued revenue pressure could lead to a covenant violation or restructuring over the next 12-24 months,? wrote Moody?s Vice President and Senior Analyst John E. Puchalla.

Moody?s said McClatchy?s so-called leverage ratio -- measured as amount of debt compared to EBITDA (earnings before interest, taxes, depreciation and amortization) ? was ?approximately 9 times? for the last 12 months ended in March. By comparison, Tribune Co. had an estimated leverage ratio of 9.2 times debt to EBITDA when it filed for Chapter 11 bankruptcy protection.

Sacramento, Calif.-based McClatchy, publisher of The Miami Herald and about 50 other dailies -- has a policy of not commenting on ratings actions. McClatchy on Thursday reported a first-quarter loss of $37.7 million, or 45 cents a share, propelled by ad revenue that plummeted 29.5% compared to the year-ago period.

The full note from Moody?s is posted on E&P?s business-oriented Fitz & Jen blog.
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This story has been clarified from an earlier version. The Caa1 rating is four notches above C on Moody's ratings scale.