New York Times Co. Gets A Downgrade, Too

Fitz: If The New York Times Co. believed it might head back towards an investment-grade credit rating as a result of its sale/lease-back deal at its new headquarters building and the For Sale sign it's placed on its stake in the Boston Red Sox and the other assets of New England Sports Venture would protect its credit rating -- in short, all its efforts to bring down debt -- well, Standard & Poor's Ratings Services disabused them of that notion Thursday.

S&P downgraded the Times Col.'s corporate credit rating and the rating on its senior unsecured debt to B from B+. They're both junk bond ratings with B being a little worse and signifying, under S&P's definitions, that a debtor is current on its loans now, buuuuut "adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation."

Boy, Times Co. creditors better hope there are no adverse business, financial or economic conditions in the newspaper industry!

S&P said it took the action because it expects that falling ad revenue and EBITDA "will lead to a spike in leverage" by 2010.

"The ratings downgrade reflects our view that over the next two years, ad revenue and EBITDA declines will likely result in total lease- and pension-adjusted leverage increasing to the low-8x (8 times debt to EBITDA) area by 2010," S&P credit analyst Emile Courtney wrote. He noted that S&P's lease and pension adjustments add a multiple of almost four times to that leverage calculation.

The good news is that S&P has removed the "negative outlook" it had on the Times Co. Courtney said the outlook is rated "stable" because the Times Co.'s "liquidity profile" is adequate for the next two years. The Times Co., he noted has positive cash flow generation, adequate revolver availability, EBITDA "coverage of cash interest in the mid-2x area, and a lack of meaningful debt maturities until 2011."

Certain institutions won't buy the stock or bonds of companies with junk ratings,which can also drive up the cost and availability of borrowing. The downgrade comes as Times Co. stock (NYSE: NYT) has been trending upward after losing some 70% of its value over the past year or so. Thursday, minutes before the closing bell, NYT was trading at $6.57 a share, down 21 cents, or 2.5% from its open.