S&P puts Gannett on hold


Standard & Poor’s had been considering a credit ratings upgrade for Gannett Company, having knocked the company down into junk bond territory in the depths of the recession. But now S&P has decided that the improvements which would justify an upgrade are more than a year away, so it has changed Gannett’s outlook from “positive” to “stable.”

“The outlook revision to stable reflects our expectation that the timeframe for a potential upgrade lies beyond the next 12 months,” said S&P analyst Hal Diamond. “We are concerned that the current US economic malaise will aggravate the ongoing secular pressure on Gannett’s newspaper publishing business, which currently accounts for nearly 60% of consolidated EBITDA. Furthermore, while we do not anticipate leverage to materially increase over the near term, we see the potential that long-term credit profile improvement could be hampered by continued secular pressure on the business, despite efforts at cost restructuring and development of new digital revenue,” he added.

Gannett has a BB corporate credit rating, which S&P says reflects its exposure to a downturn in the economy and unfavorable secular trends affecting newspaper advertising and circulation.

“Although we expect Gannett to outperform most of its US newspaper peers, especially those with a metropolitan focus, and maintain a good consolidated EBITDA margin, the company remains dependent on the newspaper industry, which we view as subject to long-term secular decline,” said the S&P analysis. “The company’s TV broadcasting business faces mature long-term growth prospects, and operating performance remains sensitive to political advertising cycles. We believe these dynamics, together with increased risk of a return to recession, will cloud the revenue picture for at least the next 12-24 months. Even with ongoing cost reductions, we see the potential for EBITDA declines that could contribute to an increase in leverage over the intermediate term, depending on the company’s financial policies,” said the statement.

“The stable outlook reflects our expectation that the U.S. economy will remain weak over the near term and that unfavorable secular trends will postpone upgrade potential,” S&P added.