McClatchy Gets Upgrade

Standard & Poor’s Upgrades McClatchy’s Corporate Rating

On Tuesday June 30, 2009, Standard & Poor’s raised its corporate credit rating for newspaper publisher McClatchy (MNI - Snapshot Report) to "CC" (highly vulnerable) from "SD," (selective default). The rating agency still holds a negative view on the company on account of its possible restructuring.

Last Friday, June 26, both Standard & Poor's and Moody's Investor Services had lowered their corporate ratings on the company following the debt exchange offer announced by McClatchy. Moody's lowered its corporate rating to "Caa2" from "Caa1", whereas Standard & Poor's lowered its credit rating to "SD" from "CC." McClatchy offered to pay $60 million in cash and issue $175 million in new notes, with a 15.75% coupon rate due 2014, to replace $1.15 billion in debt owed to its bondholders.

The reason behind downgrading was the company’s dubious ability to repay debt and high default risk. On the announcement of the completion of the debt exchange offer on June 26, only $102.9 million in debt had been tendered, (approximately 9% of $1.15 billion).

The recent marginal amendment to "CC" from "SD," by Standard & Poor’s was based on McClatchy’s announcement that it exchanged $24.2 million in new senior notes and $3.4 million in cash, for a total of $102.9 million of senior notes.

McClatchy like other newspaper companies – The New York Times Company (NYT - Snapshot Report), Washington Post Co (WPO - Analyst Report), Gannett Co (GCI - Snapshot Report) and Journal Communications (JRN) is in the midst of a secular and cyclical slowdown in print advertising. McClatchy, in a race for survival, is building its Internet operations, cutting costs, reducing its debt burden and has recently suspended its dividend.

However, postponement of $190 million land sale erodes visibility to any relief. We maintain a Sell rating on the stock with a six-month target price of $0.50.