Publishers Likely To Take Lower Credit Ratings for Higher Stock Prices

By: Jennifer Saba
The credit rating firms have been busy lately, downgrading several newspaper companies. It's a trend that's likely to continue, said a report released from Bear Stearns.

The research firm notes that Standard & Poor's and Moody's cut Tribune's credit rating in May; Moody's lowered its rating on Dow Jones, Knight Ridder, and McClatchy in March. Yet all the companies are still considered investment grade (McClatchy and Knight Ridder are "on the line," the report said).

"We note that in several instances a primary factor cited as a contributor to a more cautious credit outlook is the weak fundamental outlook for newspaper advertising growth, which is in contrast to the strong overall advertising environment," Bear Stearns analyst Alexia Quadrani wrote.

Bear Stearns cites many reasons, including the migration or newspaper advertising to the Web and the disintermediation of content. Furthermore, the research firm thinks that Tribune's "aggressive share buy back" is partly a reflection of "management's acknowledgement of the severity of the current newspaper revenue challenges and the need for dramatic change."

Tribune may start off a chain reaction as publishes seek ways to appease Wall Street and as a result "management teams are willing to accept lower credit ratings in favor of improved stock performance," the report said. Bear Stearns thinks Gannett and Journal Register are likely to follow suit.