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S&P cuts New York Times rating deeper into junk status

STANDARD & Poor's yesterday cut its rating on the New York Times Co deeper into junk status, citing rising leverage in the midst of a newspaper industry slump.

A drop in ad revenue aggravated by the long US recession will likely lead to a spike in leverage at the Times by 2010, S&P said in a statement. The rating agency said it expects the economy to begin to recover late this year, but there is significant uncertainty about when the newspaper ad slump will begin to heal.

S&P downgraded the Times' corporate credit rating by one notch to B, the fifth-highest junk rating, from B-plus. The outlook is stable, meaning another downgrade is not expected over the next two years.

The New York Times last month reported a US$74.5 million first-quarter net loss because of a 27 percent drop in ad revenue and poor performance at The Boston Globe.

Like other newspapers, the Times is grappling with mounting losses as more people go online for news, hurting ad revenues. The Times has been taking actions to reduce employees' pay and repay some of its debt or push out due dates until ad sales improve.

In another sign of the industry's troubles, McClatchy Co, publisher of The Miami Herald and other newspapers, yesterday announced a US$1.15 billion debt exchange offer and other steps in a bid to stay afloat.

Without a significant amount of debt due until 2011, the New York Times' liquidity, or cash will likely be adequate for its rating over the next two years, S&P said.

However, the company's high leverage remains a concern, particularly in the face of industry challenges, the rating agency said. Ratings could be cut again if the Times does not generate as much free cash as expected, if ad revenue does not begin to moderate in 2010 or if expenses are not cut as much as expected, the rating agency said.


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