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Rating Action:

MOODY'S ASSIGNS B1 TO GARDEN STATE NEWSPAPERS' NEW SR. SUB. NOTES. BANK DEBT RATED Ba1. EXISTING SR. SUB. SEC. NOTES UPGRADED TO B1. PARENT-COMPANY AFFILIATED NEWSPAPERS INVESTMENTS' SR. DISC. NOTES UPGRADED TO B1

23 Sep 1997
MOODY'S ASSIGNS B1 TO GARDEN STATE NEWSPAPERS' NEW SR. SUB. NOTES. BANK DEBT RATED Ba1. EXISTING SR. SUB. SEC. NOTES UPGRADED TO B1. PARENT-COMPANY AFFILIATED NEWSPAPERS INVESTMENTS' SR. DISC. NOTES UPGRADED TO B1 New York, 09-23-97 -- Moody's Investors Service has assigned a B1 rating to the proposed $200 million issue of 12-year senior subordinated notes of Garden State Newspapers ("GSN"), and rated its $285 million in amended bank credit facilities a Ba1. Moody's also upgraded GSN's $100 million issue of 12% senior subordinated secured notes due 2004 from B2 to B1, and approximately $135 million in accreted value of 13-1/4% senior discount notes due 2006 of its parent company, Affiliated Newspapers Investments ("ANI") from B3 to B1. The rating outlook is stable.
Net note proceeds from the Rule 144A bond offering will be used primarily to pay down borrowings under the bank credit facilities.
The ratings reflect a weak consolidated balance sheet (characterized by a large stockholders' deficit and sizable intangible assets); high dependence on advertising revenues; vulnerability to economic recessions and cyclical ad spending (especially in California where approximately 38% of estimated EBITDA for the recently completed fiscal year and over 40% of circulation are derived); and acquisition risk. While the company has secured attractive prices for newsprint over the next two- to three-years, over the long term, it is vulnerable to cyclical spikes in the cost of newsprint.
At the same time, the ratings reflect reduced financial leverage; improved operating results and interest coverage at GSN and ANI; a healthy advertising environment and outlook for newspapers; generally strong market positions in GSN's mostly suburban markets where direct newspaper competition is limited; a growing number of geographically diverse daily and weekly newspaper properties; a low cost-structure partly the result of an emphasis on clustering newspaper properties to achieve economies in printing, editorial, ad sales, and production; and favorable circulation trends.
ANI's 60%-owned Denver Post operation has been embroiled in a prolonged battle with a local tabloid rival. Notwithstanding depressed ad rates and cover prices, the broadsheet has achieved solid gains in circulation, and ad revenues and ad lineage share have also improved. The Denver Post investment represents significant value for ANI, reflecting its low debt load and the Denver region's healthy economic fundamentals and outlook.
The ratings also recognize the outlook for continued revenue growth and improved profitability over time for GSN and the expectation that management will seek to further moderate fixed charges and debt leverage. Moody's anticipates that GSN will consider calling its high cost 12% notes in 1999. The new bond offering sets the stage for a call by creating availability under the comparatively low cost bank facility, which could be used to finance the potential redemption.
The B1 ratings on GSN's senior subordinated notes also reflect their subordination to a sizable amount of senior secured bank debt. The Ba1 rating on GSN's bank credit facilities also reflect good collateral coverage deriving from the newspapers' high implicit valuations. The B1-rated ANI bonds also reflect the substantial implicit value of ANI's 60-% owned Denver Post.
The stable outlook reflects Moody's view that the companies' credit profile will remain largely intact over the next few years. In 1999 and 2000, Moody's believes that management may take actions to refinance high cost debts at GSN and ANI, which if successful could result in significant improvements to earnings and financial flexibility.
GSN has grown significantly through acquisitions and is likely to continue acquiring additional newspapers to add to its existing newspaper clusters. Properties not fitting well with the clustering strategy are likely to be sold or swapped. Management has demonstrated considerable skill in acquiring desirable newspapers at relatively low price multiples and in selling or swapping properties at higher multiples.
The bank credit facility comprises a $167 million 6-year declining amount revolving credit facility (revolver A); a $27 million 7-year non-reducing revolving credit facility (revolver B); a $76 million 7-year reducing revolving credit facility (revolver C); and a $15 million 7-year amortizing term loan (term loan A). The facilities are generally guaranteed by the various GSN subsidiaries, and they are secured by substantially all company assets and pledges of subsidiary shares, but not equally and ratably.
The notes are being sold in a privately negotiated transaction without registration under the Securities Act of 1933 under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The issuance has been designed to permit resale under Rule 144A.
Denver, Colorado-based Garden State Newspapers, Inc., wholly-owned by Affiliated Newspapers Investments, Inc., is one of the largest privately held suburban newspaper publishers in the United States. Affiliated Newspapers Investments also owns 60% of the Denver Post.

No Related Data.
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