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The New York Times’ bond rating goes down, down, down

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By Michelle Malkin  •  July 11, 2007 12:36 PM

Reader D.G. sends a heads up that the S&P is preparing to cut the New York Times bond rating close to junk. He e-mails: “At BBB, they are two levels above junk. One more level ,BBB-, and many bond funds will have to bail from the New York Times as their charter won’t let them hold junk.”

Incoming details from S&P:

S&P Lowers New York Times Ratings To BBB/A-3; Off Watch 2007-07-11 12:18 (New York)

Rationale

On July 11, 2007, Standard & Poor’s Ratings Services lowered its long-term corporate credit and senior unsecured debt ratings on The New York Times Co., to ‘BBB’ from ‘BBB+’. The short-term corporate credit and commercial paper ratings on the company were also lowered, to ‘A-3′ from ‘A-2′. All ratings were removed from CreditWatch, where they were placed with negative implications on March 23, 2007, following the company’s announced plan to increase its dividend to shareholders. The rating outlook is negative.

The lower ratings follow our review of the company and, with the industry continuing to exhibit secular and cyclical (in some segments) declines, we have reassessed The Times’ business risk profile. While the company repaid debt with net proceeds from the sale of its Broadcast Media Group and its radio station (WQEW) in the second quarter of fiscal 2007, operating
performance for the month of May was lower than anticipated, with total advertising revenues down 8.5% year over year and newspaper ad revenues down 9.9%. We are increasingly concerned about the pace of decline for print advertising. The Times has embarked on cost-cutting initiatives with some success; however, we expect revenue declines to continue over the next couple
of years and that the company’s credit profile will be more consistent with the new ratings over the intermediate term…

…Outlook

The rating outlook is negative. The Times’ financial profile is expected to remain weak for the ‘BBB’ rating during the intermediate term. In 2007, asset sales will lead to meaningful debt reduction despite capital spending projects, but the related improvement to the company’s credit profile will be reduced by operating declines. In 2008 and beyond, we expect that The Times will have the capacity to repay debt, but we expect that ongoing operating weakness will preclude a significant improvement to credit measures. We believe that secular declines in the newspaper industry will continue to affect top-line growth during the intermediate term. The rating could be lowered if trends related to print advertising remain in line with what was reported in the past few months, suggesting that annual revenue declines may exceed the low single-digit area…

The market speaks.

***
Thomas Lifson calls it a “slow motion business collapse.”

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