Friday, December 5, 2008
A Chicago financial rating service is predicting several cities will have no newspapers by 2010. Editor and Publisher reports on a study recently released the Fitch Ratings that newspapers and newspaper groups will default on their debt in 2009 and be liquidated, leaving major cities without a daily newspaper. They cite McClatchy and Tribune in particular as being in serious jeopardy. Fitch rates the debt of two newspaper companies, The McClatchy Co. and Tribune Co. as junk, with serious possibilities of default. It also assigns a negative outlook to both the companies and the newspaper sector, meaning their credit ratings are likely to deteriorate further. A debt rating service recently cut the NY Times’ rating to junk, while another said they would revaluate it in the near future. Aside from the chains, two individual papers appear to be in deep trouble. The Minneapolis Star Tribune and the Philadelphia Inquirer suffer the same problems, both recently purchased in highly leveraged deals by inexperienced publishers. There has been some wishful thinking in the newspaper industry that debt holders wouldn’t press the publishers if they defaulted because newspapers and their assets were unmarketable. Not likely. But the best evaluators of the financial condition of newspapers are the newsprint salesmen. They know to the day when each paper made its latest payment and how much they owe. Most are tight lipped to outsiders, but the newsprint companies compare notes among themselves. And they will be the ones to pull the plug first. In the newspaper business, the second and fourth quarters are the moneymakers, especially the fourth with the heavy Christmas push by the retailers. The first and third are the worst. If things go south, they will probably happen then.