...Moody’s said the offer amounted to a distressed debt exchange, a default under its rating definitions. Credit raters not only don’t like the offer to pay far less than face value on the notes, they also say it amounts to coercion because holders who don’t exchange the old notes will have to get in line behind holders of the new notes if McClatchy were to go bankrupt or trigger some other default event.
The exchange would lower McClatchy’s debt level and stretch out maturities, but Moody’s senior analyst John E. Puchalla suggests in his note on the offer that the company will still be highly leveraged even
after the swap. Ad revenue will continue to be under “significant pressure,” and Moody expects that “debt-to-EBITDA leverage ... would remain very high at approximately 7.5-8.0x (times).”
Moody’s downgraded McClatchy’s “probability of default” rating to Caa3 from Caa1. The new rating suggests a “substantial risk” of default, a nearly 25% chance, according to Moody’s definition.