UPDATE: We're Different Than Tribune, MediaNews Says After Downgrade

By: Mark Fitzgerald MediaNews Group Inc. late Thursday insisted it is in compliance with all its debt covenants, as it reacted to a credit downgrade by Moody's Investors Services to a rating suggesting "a substantial risk" of default.

"All newspaper companies are facing credit downgrades and MediaNews Group is no exception," the parent company of The Denver Post and 53 other dailies said in a statement. "MediaNews has always been an industry leader in tightly managing its businesses and liquidity in good times and bad. MediaNews Group is in compliance with all debt covenants, as has always been the case, and expects to do whatever is needed to stay in compliance during these difficult times."

A company spokesman also rejected the comparison made by E&P between MediaNews Group's debt load and Tribune Co.'s leverage.

Moody's report suggested MediaNews was carrying debt at a leverage ratio only a little lower than that of Tribune, which sought Chapter 11 bankruptcy protection on Monday.

Moody's said it calculates Denver-based MediaNews Group's leverage ratio as more than 8 times debt to EBITDA (earnings before interest, taxes, depreciation and amortization). When Tribune sought bankruptcy refuge earlier this week, it was widely reported it feared violating its credit agreement covenants of 9 times EBITDA.

"By far, the largest debtholder of MediaNews is our partner, which is a lot different than Tribune," the spokesman said, referring to Hearst Corporation, which holds a stake in some 115 MediaNews newspapers published outside of California. Tribune debt is held mostly by banks, with some debt securities trading publicly.

In its report by Christina Padgett and John Page, Moody's downgraded MediaNews Group's Corporate Family Rating (CFR) to Caa3 from B3. The lower rating suggests a "substantial risk" of default under Moody's definitions.

Moody's rated the Probability of Default for the parent company of The Denver Post and San Jose Mercury News also a Caa3, down from Caa1.

"The Caa3 CFR incorporates MediaNews' heavy debt burden, high leverage (calculated by Moody's to exceed 8 times debt to EBITDA at the end of September 2008), and the weak level of debtholder protection indicated by
current newspaper valuation multiples," Moody's said.

The default rating, Moody's said, reflects its "concern that the downturn of the company advertising sales will be significantly more protracted than previously anticipated, further straining the company's liquidity profile and heightening the probability of a covenant default."

Moody's ratings actions affected about $962 million in debt of MediaNews, a company with about $1.2 billion in annual revenues.

More details on the ratings of specific securities are on E&P's business-oriented Fitz & Jen blog.