Moody's Threatens Washington Post Co.'s Stellar Credit Rating

By: Mark Fitzgerald At a time when newspaper company bonds are almost uniformly rated as junk, The Washington Post Co. has maintained top ratings among agencies impressed by the diverse holdings that cushion it from the cyclical and permanent pressures on newspapers.

But now Moody's Investors Service is threatening to downgrade its stellar rating of the Post Co.

Moody's reaffirmed it A1 "very high quality" ratings for the Post Co.'s senior unsecured debt and commercial paper -- but changed its ratings outlook from stable to negative, suggesting a downgrade is ahead.

"The negative rating outlook reflects Moody's concern that acquisition activity over the next several years -- including the pending purchase of Miami's NBC affiliate -- could sustain leverage at levels that are already weak for the A1 rating," analysts John Puchalla and Alexandra S. Parker wrote in a note to investors.

Moody's said it anticipates growth in the Post Co.'s Kaplan education business plus its CableOne cable TV holding "will mitigate some of the secular and cyclical pressure in the traditional media properties over the next several years, but that earnings growth might not be sufficient to return leverage to the levels appropriate for the A1 rating."

In the last several years, as other newspaper companies loaded up with debt to swing big acquisitions, the Post Co. has maintained a conservative balance sheet and low debt level. Moody's calculates its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio at just 2.1 times.

For more details on the Moody's ratings warning see Fitz & Jen blog.