Standard & Poors has put the New York Times’ (NYT) credit ratings on “Credit Watch with negative implications,” meaning that analysts at S&P are pondering downgrading the company’s corporate credit rating to non-investment, or “junk” status. The move follows another horrible Q2 result in which the company missed both revenue and EPS estimates.
Specifically, S&P cites the “accelerating pace of total revenue decline and a rate of decline in EBITDA in the first half of 2008 that indicates the company may have difficulty achieving our expectations for the current rating.”
NEW YORK (Standard & Poor's) July 23, 2008--Standard & Poor's Ratings Services <br />today placed its ratings for The New York Times Co., including the 'BBB-' <br />corporate credit rating, on CreditWatch with negative implications.<br /> "The CreditWatch listing reflects an accelerating pace of total revenue <br />decline and a rate of decline in EBITDA in the first half of 2008 that <br />indicates the company may have difficulty achieving our expectations for the <br />current rating," explained Standard & Poor's credit analyst Emile Courtney. <br />"This is notwithstanding our understanding that The New York Times is <br />attempting to lower its cost base by more than $130 million in 2008."<br /> Total revenue declined 5% in the March 2008 quarter, 6% in the June 2008 <br />quarter, and 10% in the month of June 2008. In the six months ended June 2008, <br />EBITDA declined by 20% excluding buyout expenditures and by 36% after buyout <br />expenditures. The current 'BBB-' rating incorporates the expectation that <br />total revenue declines would not exceed the mid-single-digit area this year, <br />and that EBITDA declines would not exceed the mid-teens percentage area <br />(excluding buyout expenditures). Maintenance of the current rating also <br />depends on the company growing its online revenue base in a manner that can <br />begin to fully offset print revenue declines over the next two years and, <br />concurrently, EBITDA generation stabilizing over this time frame. The <br />likelihood of the company achieving these goals is complicated by the current <br />pace of print advertising revenue declines, even though online revenue growth <br />at 13% remained good in the June 2008 quarter. In addition, we are concerned <br />the company will be unable to maintain leverage (as measured by total lease- <br />and pension-adjusted debt to EBITDA) at 3.25x or less on average--the target <br />for the current rating. Leverage was 3.5x at June 2008.<br /> In resolving the CreditWatch listing, we will review operating and <br />financial expectations over the near-to-intermediate term.<br /> <br /><br /> Complete ratings information is available to subscribers of <br />RatingsDirect, the real-time Web-based source for Standard & Poor's credit <br />ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings <br />affected by this rating action can be found on Standard & Poor's public Web <br />site at www.standardandpoors.com; select your preferred country or region, <br />then Ratings in the left navigation bar, followed by Credit Ratings Search.<br /><br />