Moody’s still negative on the newspaper biz


That’s hardly surprising, but Moody’s Investors Service is now warning of “dire straits” for some newspaper companies in 2009. Moody’s does think the newspaper industry will survive, by eventually deleveraging, either free via cash flow or bankruptcy filings. As for 2009, look for some debt defaults, although Moody’s thinks most companies will be able to restructure their debt, rather than actually shut down.

In its latest update on the sector, Moody’s said its outlook on the newspaper industry’s credit fundamentals remains negative, based on the expectation that advertising revenue will continue to drop as the economy slows in the year ahead and online advertising continues to take share.

“Advertising revenue trends and liquidity issues are likely to be the primary rating drivers for newspaper companies over the next 12-18 months,” said Moody’s VP-Senior Analyst John Puchalla.

“The downturn in the economy, combined with the long-term shift from away from print advertisements, could put some newspaper publishers in dire straits in 2009,” the update from Moody’s warned.

Overall, falling advertising revenues both nationally and locally are putting increasing pressure on cash flow, noted Puchalla. "Thus, companies’ ability to maintain sufficient liquidity will by the key to sustaining existing capital structures through the current economic downturn,” he said.

In the vie of Moody’s analysts, the negative outlook for newspaper-ad revenue has worsened in the past six months as bleak data on the economy mounts. Rising job losses, the weak housing market and tighter credit availability raise concerns that consumer spending will weaken further, extending and deepening the economic downturn.

In addition, Puchalla said the default risk is high for highly leveraged newspaper companies. Although we expect some newspaper publishers to default in 2009, the ones that do are most likely to restructure their debt, rather than close shop,” he said.

However, the Moody’s report says a more enduring operational legacy of the current downturn could be the damage done to newspaper brands through newsroom cuts. “Companies are trying to reduce costs without cutting back the staff that creates the core product, but a very weak revenue environment could make that difficult,” Moody’s cautioned.

“Longer term, Moody’s believes the industry will eventually deleverage, either by reducing debt with free cash flow or by way of bankruptcy filings. At that point, debt will likely stay at lower levels to make the industry a viable one,” the credit rating agency concluded.

RBR/TVBR observation: Not mentioned by Moody’s is the possibility of newspaper companies closing down some of their weakest operations. Journal Register recently said it would shutter two dailies and 11 weeklies in Connecticut if no buyer can be found in the next few weeks. We would not be surprised to see other newspaper companies do likewise.