The McClatchy Co. had its credit rating downgraded again Monday amid continuing fears about the Sacramento publisher's falling revenue and profit.
Standard & Poor's Ratings Services said it was concerned about McClatchy's announcement Friday that it had renegotiated its bank loans to provide more breathing room for the company. While investors seemed to welcome the news, S&P took it as a sign that McClatchy's troubles are deepening more quickly than expected amid a weak economy and competition from the Internet.
S&P cut the rating a notch, to "B" from "B-plus." That puts The Bee's owner deeper into non-investment-grade, or junk-bond, territory. It is the latest in a series of downgrades the past 2 1/2 years.
The downgrade "reflects prospects for more meaningful declines in revenue and (cash flow) in McClatchy's newspaper publishing business over the intermediate term than we had previously expected," S&P said. While it said McClatchy will likely "succeed in its cost-cutting efforts," it's worried about the company's cushion "thinning."
As a practical matter, downgrades often can increase a borrower's interest payments. But McClatchy's bonds are at fixed rates; the interest it pays on bank loans are based on a ratio of debt to cash flow. So the downgrade will have no impact, said McClatchy Treasurer Elaine Lintecum.
"We're sorry that S&P made the move," she said. "The company is still generating substantial cash flow" and remains on course to reduce its total debt to about $2 billion at year's end.
She said she believes S&P was partly reacting to the general turmoil on Wall Street.
The downgrade was announced after the stock market closed. McClatchy shares closed at $4.58, up 8 cents, on the New York Stock Exchange.
Like other newspaper chains, McClatchy is suffering through a serious decline in revenue and cash flow. On Friday, it renegotiated its roughly $1.1 billion in bank loans to provide more flexibility.
The bank loans require McClatchy to maintain a minimum level of cash flow relative to its debt load. Otherwise, the company could default on the loans and become vulnerable to legal action from the banks. The new agreement gives McClatchy greater headroom.
The company said it was in no danger of defaulting even without a new loan agreement.
McClatchy will have to pay higher interest rates under the new bank deal.
Call The Bee's Dale Kasler, (916) 321-1066.
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