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10 May 2002
CORRECTION TO HEADLINE: MOODY'S LOWERS MEDIANEWS' RATINGS - SENIOR SUB TO B3; OUTLOOK STABLE (SENIOR SUB TO B2 NOT B3)
New York, May 10, 2002 -- Moody's Investors Service lowered MediaNews Group's ratings, including:
(i) its $300 million of senior subordinated notes due 2009 to B2 from B1,
(ii) its $200 million of senior subordinated notes due 2011 to B2 from B1,
(iii) the company's senior implied rating to Ba3 from Ba2, and
(iv) MediaNews' issuer rating to B1 from Ba3.
The rating outlook is stable.
Moody's lowered MediaNews' ratings to reflect the deterioration in the company's debt protection measures including a substantial increase in leverage and decline in cash flow during 2001. The company's performance was negatively impacted by the weak advertising environment during a period in which the company was in the process of integrating the Denver Post and Rocky Mountain News through the start up of the Denver JOA. In addition, the company was also unable to make any improvements at the Salt Lake Tribune after its acquisition due to a pre-existing management agreement which expires July 31, 2002.
MediaNews continues to be vulnerable to its concentration in California through the California Partnership and the potential for acquisitions which could be debt financed. Further, MediaNews faces the issues that impact newspaper operators more broadly, including the significant competition for newspapers' share of advertising revenues, volatile paper prices, labor and production costs and the long term decline in circulation.
However, the ratings also consider the value associated with MediaNews' portfolio of newspapers, its presence in large markets, and opportunities for improved financial performance. The company is currently benefiting from low paper prices as well as cost cutting measures taken by management. MediaNews expects to reduce its debt burden in part through asset sales, including the likely sale of the company's Denver office space which will likely bring in excess of $20 million.
While the resolution to MediaNews' problems in Salt Lake will remain in flux until the legal battle with the paper's existing management for control is concluded (June 2002 trial date), Moody's expects that financial performance at the paper will improve following the company's control and consequent ability to impose greater efficiencies. Alternatively, in the event that the company sells the Salt Lake Tribune pursuant to a successful option exercise (the subject of current litigation), the company will realize a substantial gain and a significant reduction in its leverage ratio. In either case, the result should be de-levering for the overall business. In Denver, despite the establishment of a joint operating agreement (JOA) with Scripps' Rocky Mountain News and an end to the intense competition, the company's ability to improve operations was inhibited by a number of factors including the poor economic environment and resistance from advertisers to new rates. As a result, MediaNews reported significantly lower than anticipated cash flow for Denver during 2001, but since then has managed to gain acceptance in the market and is beginning to glean the benefits of the JOA. Still, Moody's remains concerned that resolving the issues in both Denver and Salt Lake absorbs a significant amount of management time.
The stable outlook considers the likely benefits of the resolution to the Salt Lake legal battle, the Denver JOA and the potential for improved operating performance as a result of lower paper prices, expense reductions and a less severe advertising environment. The outlook and ratings are likely to be negatively impacted if the company is not able to improve its financial performance year over year. Moody's would expect significant de-leveraging before a positive outlook would be considered.
As of 3/31/02, total Debt-to-EBITDA is high at 6.3 times, although down form 6.75 as of 12/31/01, and cash interest coverage is thin at about 2 times. While Moody's recognizes the potential for improved operating margins during 2002, revenue growth is likely to be inhibited by the mild economic recovery. If the company is successful at improving its Denver and Salt Lake operations or if it is forced to sell Salt Lake, the consequent reduction in debt and positive impact on cash flow should generate improvement in the company's credit statistics by year end.
The B2 senior subordinated notes rating reflects the issues' contractual and effective subordination to the company's $500 million of senior secured credit facilities (by the capital stock of the company and its subsidiaries) as well as the absence of guarantees on the notes by MediaNews' operating subsidiaries.
MediaNews Group, Inc., headquartered in Denver, Colorado, is the 7th largest newspaper group in the United States in terms of circulation, controlling 46 daily and 81 non-daily newspapers.
No Related Data.
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