The Junk, Man, Cometh: Fitch Downgrades McClatchy Deeper Into Bad Territory

By: Mark Fitzgerald Fitch Ratings downgraded The McClatchy Co.'s debt rating further into junk territory Wednesday, and warned that it may lower its ratings again.

Also Wednesday, Morningstar issued a note commenting on McClatchy's third-quarter earnings report Tuesday. Morningstar said McClatchy's decision to halve its dividend and implement deep layoffs give it "much-needed financial breathing room," but the Chicago-based research firm said it "remains vulnerable to declining profitability, as well as potential future brushes with the limits imposed by its debt covenants."

McClatchy's Issuer Default Rating (IDR) was taken down one notch by Fitch to B- from B+, a rating suggesting its debt is "highly speculative." Fitch downgraded McClatchy's senior unsecured notes and debentures to CCC/RR6, a level that suggests "default is a real possibility," from B/RR5. An RR6 rating suggests lenders would recover less than 10% of its funds in a "distressed scenario."

Fitch rated McClatchy's secured bank credit facility at RR2, suggesting a "71% to 90% recovery is realistic" under a distressed scenario.

Fitch praised McClatchy's "aggressive" efforts to reduce costs, but said that has not been able to compensate for significant revenue declines.

McClatchy is carrying about $2.1 billion in debt.