Fitch Ratings said Thursday it has downgraded the issuer default rating of newspaper publisher McClatchy Co. to "C" from "CCC."
Both ratings are non-investment grade, also known as "junk." A "C" rating is just one notch above default. Fitch also downgraded the company's senior secured credit facility and senior secured term loan to "C/RR4" from "CCC/RR4."
The ratings changes come in the heels of McClatchy's offer to buy back $1.15 billion in debt at a steep discount, under the assumption that its unsecured lenders will accept a fraction of the amount they are owed rather than risk getting even less if the company were to seek bankruptcy protection.
The company is offering to pay $60 million in cash and issue $175 million in new notes to replace $1.15 billion in debt.
The ratings agency said that when it downgraded McClatchy to "CCC" in February, it was "particularly concerned about the potential for a coercive debt exchange offer that would represent a material reduction in terms for unsecured bond holders."
Thursday's announcement, Fitch said, would constitute a restricted default under the ratings agency's coercive debt exchange criteria.
This is because the "deeply below-par offer and partial maturity extension represent a material reduction in terms," Fitch said.
In addition, Fitch said it "views the offer as coercive, because old bondholders that do not participate in the exchange risk being further subordinated to the proposed $175 million of new notes.
Fitch also said it sees "exceptionally high levels of credit risk and a real threat of bankruptcy" for the company.
Thursday, May 21, 2009
Seeing bankruptcy threat, Fitch downgrades McClatchy deeper into junk status
Citing what it called "a real threat of bankruptcy", Fitch downgraded McClatchy to "C" -- just one notch above a default rating.