S&P Rates Transcontinental Preferred Share Offering as 'Junk,' -- but High on Scale

By: Mark Fitzgerald Standard & Poor's Ratings Services on Tuesday assigned a rating just below investment grade to Transcontinental Inc.'s proposed issue of preferred stock, partly to pay down debt of the big Montreal-based commercial printer that handles production of the San Francisco Chronicle and dozens of Canadian newspapers.

S&P gave the C$100 million (US$93.6 million) preferred shares an issue-level Canadian scale rating of P-3, which corresponds to a BB+ on its global ratings scale. Both ratings are on the highest end of the speculative-grade, or "junk," scale.

S&P has assigned a corporate credit rating of BBB- to Transcontinental, which is investment-grade. It also said the outlook on the rating is stable, meaning it is unlikely to change in the near term.

"The BBB- corporate credit rating and stable outlook on Transcontinental reflect what we view as the company's leading market position in various segments of the Canadian printing and publishing industries, which in turn results in a diversified revenue mix," said S&P analyst Donald Marleau in Toronto.

"We believe these strengths are partially offset by the company's weak operating performance and credit protection measures for the ratings, aggressive capital investment strategy, and participation in the challenging printing industry (mature, pricing pressures, highly competitive, capital-intensive, and cyclical)," he added.

Because the preferred stock would be subordinated to other debt, the P-3 rating was necessary, Marleau explained. But S&P also judged the offering to be a "hybrid" with some equity content. "Accordingly, the issuance has the affect (sic) of modestly improving Transcontinental's pro forma adjusted debt leverage," the note said.

The complete note is posted at E&P's business-oriented Fitz & Jen blog.


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