Moody's Investors Service on Wednesday downgraded McClatchy Co.'s (MNI: McClatchy Newspapers, Inc.) corporate family and probability of default ratings to B2 from Ba3 and its senior unsecured notes to Caa1 from B1. "The downgrade reflects our expectation that ongoing significant declines in advertising revenue will continue to pressure EBITDA -- leading to an increase in leverage and heightened risk of a credit facility covenant violation," said Moody's. The move follows the company's announcement that it will lay off about 1,150 employees, equivalent to 10% of its total workforce, in an effort to reduce costs.
But McClatchy's Treasurer claims the downgrade doesn't really matter.
Often a lower rating can mean higher borrowing costs. But McClatchy's bonds carry a fixed rate, and its bank loans aren't tied to credit ratings, said McClatchy Treasurer Elaine Lintecum. "There's no practical effect" of the downgrade, she said.
Hat tip to a commenter.
2 comments:
"There's no practical effect" ; unless McClatchy needs an quick infusion of cash...
Exactly. It means this rating company now classifies McClatchy's credit rating as junk. If this is a long recession (and officially we are not in one yet), then further revenue declines will lead to possible defaults, at which time most loans come due and have to be renegotiated. They will then be renegotiated at the higher junk bond rating. It's a gentlemanly version of what the Mafia does when you take a loan from a bookie, but the result in terms of people harmed and lives ruined is often the same.
Post a Comment