News for the New York Times just keeps getting worse. Debt rating agency Moody’s, as famous as Wall Street for locking barn doors after horses are gone, just downgraded its outlook on the company’s debt to NEGATIVE. In Moody’s inimitable shorthand, this means that if the New York Times doesn’t start shoring up cash flow in a hurry, Moody’s may downgrade the NYT’s actual debt.
(This clever “early-warning” system is presumably designed to reduce the flak Moody’s gets from clients outraged about the downgrades: It can say, “Hey, we didn’t downgrade your bonds–we just downgraded the outlook for our rating on your bonds!” It’s a miracle Wall Street hasn’t adopted this system.)
In 12-18 months, Moody’s may downgrade the NYT’s debt to junk status (perhaps when the company is bankrupt). In any case, today’s “outlook” cut isn’t good news for the pallid grey lady.
“The negative rating outlook results from increased pressure on the company’s retail and classified advertising from cross media competition and the downturn in the housing market,” Moody’s said in a statement. The Times is suffering from a downturn in print advertising as more people spend their time on the Internet and economic factors like the weakened U.S. housing market crimp marketing budgets. A 31 per cent increase in the company’s quarterly dividend in March 2007, tax payments on recent asset sales and continued heavy capital spending through early 2008 will also challenge the company’s ability to generate sufficient free cash flow to reduce its debt, Moody’s said. Debt to earnings before interest, taxes, depreciation and amortization had been previously expected to fall to 2.5 times in 2007, Moody’s said.