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Rating Action:

Moody's rates New York Times' notes B1; outlook changed to positive

01 Nov 2010

Approximately $525 million of debt affected

New York, November 01, 2010 -- Moody's Investors Service assigned a B1 rating to The New York Times Company's (NY Times) proposed $200 million senior unsecured notes due 2016 and changed the rating outlook to positive from stable. Moody's also affirmed NY Times' B1 Corporate Family Rating (CFR) and B1 Probability of Default Rating (PDR), and upgraded the speculative-grade liquidity rating to SGL-2 from SGL-3. NY Times plans to utilize the net proceeds from the proposed notes for general corporate purposes, including repayment of outstanding indebtedness and contributions to the company's defined benefit pension plans. Moody's believes the company will utilize part of the note proceeds along with cash to fund a call of the $250 million 14.053% notes issued to affiliates of Carlos Slim Helu (Slim notes). The Slim notes are callable in January 2012 and the company has publicly indicated its intent to retire the notes to reduce interest expense. Loss given default point estimates were updated to reflect the company's updated debt structure.

Assignments:

..Issuer: New York Times Company (The)

....Senior Unsecured Regular Bond/Debenture due 2016, Assigned B1, LGD4 - 56%

LGD Changes:

..Issuer: New York Times Company (The)

....Senior Unsecured Regular Bond/Debentures, Changed to LGD4 - 56% from LGD4 - 57% (no change to B1 rating)

Upgrades:

..Issuer: New York Times Company (The)

....Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

Outlook Actions:

..Issuer: New York Times Company (The)

....Outlook, Changed To Positive From Stable

RATINGS RATIONALE

The change in the rating outlook to positive reflects Moody's expectation that NY Times will generate meaningful free cash flow in a $130-150 million range in 2011 and 2012 and that the company will continue to utilize that cash flow to reduce debt and leverage, despite anticipated pressure on earnings. Moody's believes the conservative leverage targeted by the company will continue to guide its use of free cash flow. Gross balance sheet debt and cash interest expense will increase in the near term as a result of the proposed 2016 note offering, but should drop below current levels once the Slim notes are called. Moody's also expects NY Times will retire the $75 million MTN's due in September 2012 with cash and continue to make contributions to its pension plans, which will be considered debt reduction.

Moody's remains cautious about the newspaper advertising environment in 2011 and does not anticipate a resumption of revenue growth in the near term. Moody's nevertheless anticipates NY Times will continue to manage its costs prudently and take steps such as the rollout of the previously announced pay model for The New York Times newspaper (Times) to mitigate declines in print advertising. Moody's believes the strong position of the Times as the paper of record in national news will prevent significant cannibalization of online readership and advertising when the pay model is introduced. The pace of de-leveraging will slow as Moody's does not expect the 75% jump in EBITDA in 2010's first nine months (driven by cost reductions) will be repeated, but continued declines in debt (including the underfunded pension, which Moody's views as debt) and leverage could position the company for an upgrade.

NY Times' B1 CFR continues to reflect its significant global news and information infrastructure that supports high quality content, which appeals to a large and affluent customer base that is attractive to advertisers. The company derives the majority of its revenue from newspapers and its revenue is under significant long-term pressure due to heightened competition from online and mobile news and information content providers and also vulnerable to cyclical downturns. The transition to a more digital-oriented revenue base will likely be disruptive as circulation and advertising rates are expected to be lower than existing print rates. Debt-to-EBITDA leverage of 4.3x (LTM 9/26/10 incorporating Moody's standard adjustments) is high, particularly for an industry that Moody's believes should be conservatively levered given the cyclicality and long-term competitive challenges. However, Moody's anticipates leverage will decline to a level at or below 4x in 2012 factoring in anticipated debt reduction and EBITDA declines in the 7-11% range in 2011 and 2012.

The new notes will be senior unsecured and unguaranteed obligations of NY Times and will rank equally with its existing and future senior unsecured debt. The B1 rating and LGD4-56% assessment on the notes reflect the structural subordination to non debt operating company liabilities such as trade payables, pensions and leases. Similar to the Slim notes, the proposed 2016 notes have a more restrictive covenant package than the 5% notes due 2015 including a change of control put and limitations on debt incurrence and restricted payments. The limitation on liens covenant is broader than the existing notes in that it covers intangibles as well as PP&E, but the basket size is similar (20% of shareholders equity or approximately $130 milion as of 9/26/10). If the $400 million revolver due June 2011 is refinanced with a guaranteed or secured facility (the limiation on liens in the note indenture does not cover working capital), the rating on the unsecured and unguaranteed debt (including the proposed notes) could be notched below the CFR depending on the size of the replacement facility.

The upgrade of the speculative-grade liquidity rating to SGL-2 is driven by NY Times' strong pro forma cash balance ($329 million as of 9/26/10 pro forma for the proposed bond offering) and projected free cash flow relative to cash needs. NY Times has no debt maturities over the next 12-15 months and pension contributions are manageable within projected cash generation. The next maturity is the $75 million MTNs due September 2012 (as noted, Moody's expects NY Times will call the Slim notes in January 2012). The expiration of the $400 million revolver in June 2011 is a liquidity weakness and would result in a need to cash collateralize the $62 million of letters of credit if a replacement facility is not established.

Debt-to-EBITDA leverage above 5.5x or free cash-to-debt below 5% due to revenue weakness, an inability to translate cost savings into EBITDA improvement, acquisitions, or cash distributions to shareholders could lead to a downgrade. Deterioration in liquidity including a smaller cushion to meet debt maturities and pension contributions could also result in a downgrade.

An easing of revenue pressure and debt reduction that leads to debt-to-EBITDA sustained below 4x and free cash flow sustained above 7.5% of debt could lead to an upgrade. The company would also need to maintain a good liquidity position including sufficient cash, projected free cash flow and unused revolver capacity to fund maturities and required pension contributions to be considered for an upgrade.

The last rating action was on March 10, 2010 when Moody's changed NY Times' rating outlook to stable from negative.

Please see the credit opinion on www.moodys.com for additional information on NY Times' ratings. The principal methodology used in rating NY Times was Moody's Global Newspaper Industry published in September 2008.

The New York Times Company is a New York based media company with operations in newspaper publishing and information services. The company operates The New York Times, the International Herald Tribune, The Boston Globe, 15 other daily newspapers, and more than 50 Web sites including NYTimes.com and About.com. Revenue for the LTM 9/26/10 period was approximately $2.4 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's rates New York Times' notes B1; outlook changed to positive
No Related Data.
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