On Day Of Blockbuster, Rating Service Downgrades Knight Ridder

By: Mark Fitzgerald In a rating outlook released just before the announcement of Knight Ridder Inc.'s multi-property transaction with Gannett Co., Fitch Ratings on Tuesday lowered its outlook to "Negative" from "Stable."

Separately, the blockbuster deal barely moved Knight Ridder stock. At the 4 p.m. EST close of trade, the stock was $62.10, up 1.9% on the day. That was well off its 52-week high of $71.07, and marginally ahead of its 52-week low of $60.09.

Fitch said the Negative Outlook reflects increased debt levels resulting from stock repurchasing -- and the squeezing of margins. A Fitch spokersperson did not immediately return a phone message asking for comment on the Knight Ridder/Gannett transactions in Detroit, Florida, Washington, and Idaho.

Fitch said Knight Ridder's "operating results continue to be pressured with EBITDA (earnings before interest, taxes, depreciation and amortization) margins for the last 12 months ended June 2005 declining to 22.1% from 22.8% at year-end 2004."

In the second quarter, according to the Fitch estimates, gross share repurchases jumped 43% compared to the same quarter in 2004. It said Knight Ridder repurchased shares worth approximately $110 million during the 2005 second quarter.

EBITDA declined 8% during that same year-over-year period, according to Fitch.

"EBITDA continues to be pressured by minimal revenue growth as decreases in the company's circulation revenue have partially offset modest growth in advertising revenue," the ratings service said. Knight Ridder has increased debt to maintain its stock buyback program, Fitch said.

Fitch also affirmed the company's "A-" senior unsecured and "F2" short-term debt ratings. Approximately $1.7 billion of debt is affected by this action, the ratings service said.

The current rating was continued because, Fitch said, Knight Ridder has "strong franchises in local newspaper markets, good geographic diversity to revenue and earnings streams, strong free cash flow generation, and a strong position in the developing areas of on-line information services and advertising."