Tuesday, September 30, 2008

Fitz and Jen: Bye bye, McClatchy dividend

Fitz and Jen:

Don't get too used to your dividend, MNI shareholders. Under the amendment to its bank credit facility disclosed this weekend, The McClatchy Co. agreed to limitations on the cash dividends it can pay out.

Dividend payouts of up to $16 million will be permitted in the fiscal quarters ending in March and Juen of 2009. But after that, dividends will not be allowed unless McClatchy keeps its debt-to-cash flow ratio below 5 times. While the newspaper business could rebound by then, allowing McClatchy to de-lever more aggressively, that looks to be a tight requirement. Keep in mind that the credit facility amendment loosens the leverage ratio to 6.25 times through the end of this year, and to 7 times from March 2009 through September 2010. (The cash flow-to-interest covenant was also reduced, to 2.25 times through March 2009 and 2.00 times thereafter.)

Moody's said Monday it liked the agreement -- but not enough to move McClatchy's debt out of junk territory. It also warned of a possible further downgrade.

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