By: Mark Fitzgerald New York Times Co. debt is no longer investment grade, Standard & Poor's Ratings Services asserted late Thursday as it lowered the publisher's credit rating three notches.
The downgrade took Times Co. into junk territory with a BB- rating on both its corporate credit rating and its unsecured debt issues. S&P had rated both as BBB-, its minimum investment-grade rating.
S&P also assigned a recovery rate of 4 to Times debt, indicating lenders can expect to recover 30 cents to 50 cents on the dollar in the event of a payment default.
And the ratings firm slapped a negative outlook on the company, suggesting further downgrades are possible.
S&P's action came on the same day that Moody's Investors Services warned that it had put Times Co. unsecured debt on review for a possible downgrade. Moody's ranks Times debt at its lowest investment-grade rating.
Like Moody's, S&P expressed pessimism about the fortunes of a newspaper business given the likelihood of recession.
"The ratings downgrade reflects our expectation that a likely U.S. economic recession over the intermediate term would continue to meaningfully exacerbate secular rates of ad revenue decline over at least the next year," said Standard & Poor's credit analyst Emile Courtney.
S&P said it expects Times Co. EBITDA (earnings before interest, taxes, depreciation, and amortization) to decline "by more than 30% in 2008 and by about an additional 30% well into 2009."
And like Moody's, S&P suggested an asset sale may be necessary to keep its debt-to-cashflow ratios at around its present 4-times ratio. Among the possibilities S&P mentioned was mortgaging its new headquarters.
"If an asset sale transaction does not move forward due to market conditions, we believe leverage would be in the mid-5x (times) area by the end of 2009," S&P said.
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