Denver Post owner begs to differ with credit downgrade, Tribune comparison

The parent company of the Denver Post disputed a report Thursday afternoon that followed Moody’s Investors Services downgrade of its credit rating to one suggesting “a substantial risk” of default. An Editor & Publisher article noted that MediaNews Group’s debt-to-earning ratio was almost as high as that carried by the Tribune Co., which filed to reorganize under Chapter 11 bankruptcy on Monday, but the privately held MediaNews Group said the comparison failed to take numerous factors into account and insisted the company wasn’t in danger.

“All newspaper companies are facing credit downgrades and MediaNews Group is no exception,” MediaNews Group, which owns the Denver Post and 53 other daily newspapers, said in a statement quoted by Editor & Publisher. “MediaNews has always been an industry leader in tightly managing its businesses and liquidity in good times and bad. MediaNews Group is in compliance with all debt covenants, as has always been the case, and expects to do whatever is needed to stay in compliance during these difficult times.”

An E&P article Thursday afternoon pointed out Moody’s calculation that put MediaNews debt at eight times earnings, compared with Tribune Co.’s leverage of 9-to-1, but a MediaNews spokesman countered that Tribune’s nearly $13 billion in debt was owed primarily to banks, while MediaNews owed far less — just under $1 billion — and most of that to a potentially more lenient operating partner.

From the Moody’s rating for MediaNews Group, quoted in the Fitz & Jen financial blog:

The downgrade of MediaNews’ CFR [Corporate Family Rating] reflects continued softening of the company’s performance (total sales declined by 16% during the quarter ended September 30, 2008) and a significant weakening in its liquidity profile.

The downgrade of the PDR [Probability of Default rating] to Caa3 reflects Moody’s view that MediaNews faces a heightened risk of near-term default under the financial tests of its recently-amended senior secured credit agreement as well as the refinancing risk posed by the December 2009 maturity of its revolving credit facility.

The Moody’s downgrade came near the end of a particularly tumultuous week in the newspaper industry, following not only the bankruptcy of Tribune Co. — owner of The Los Angeles Times, Chicago Tribune among other newspaper and TV stations — but also media giant Gannett laying off 2,000 employees, the New York Times borrowing $225 million against its landmark building to cover operating costs, and the news the Miami Herald and the Rocky Mountain News were for sale. The Rocky, which operates under a federally sanctioned partnership with The Denver Post, claimed the sale wasn’t a prelude to shutting down the 149-year-old newspaper, despite an assertion made by MediaNews Group CEO Dean Singleton that “an announced sale is usually the first step leading to a failing newspaper’s closure.”

However appropriate, the Moody’s downgrade comes at a tough time for MediaNews as it attempts to remain the last paper standing in Denver’s newspaper war. Analysts have speculated that MediaNews hopes the financially strapped Post can outlast the Rocky — which plans to post $18 million in losses this year as the economic downturn has sent advertising revenue plummeting — and would be the natural buyer of its longstanding rival. But in a tight credit market, MediaNews would still need to raise the money to outbid any other suitors and “pay $1 more” for the chance to shut down the Rocky and dominate the market.

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Ernest Luning

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