Monday, November 10, 2008

Moody's downgrades nearly $3 billion in GCI debt

Moody's Investor's Service downgraded $2.9 billion of Gannett's debt today to a "Baa2" rating from "A3." "It is still above junk bond level, but Baa2 indicates that bondholders should consider it 'lower medium grade' debt,'' Reuters says in this story.

"Moody's expects that Gannett's ongoing efforts to reduce costs and debt will not fully offset what is likely to be a deeper revenue decline in 2009 than in 2008," analyst John Puchalla wrote, according to Reuters.

Lower debt ratings often increase borrowing costs -- not something GCI needs right now. The Moody's decision follows a similar move by rival Standard & Poor's early last month. Reuters notes that ratings agencies have soured on the debts of several publishers, including the New York Times Co., as their ad revenue declines.


  1. Why do they keep the dividends the same if debt is a problem?

  2. Keeping the dividends high is one of the few things CEO Craig Dubow can do to keep major investors happy -- and so keep his job.

  3. Jim, could you give us a business-for-dummies rundown on what factors are bad and what factors are good?

  4. Ditto 9:14's request.
    I don't even know who the bond holders are or why they should care about the downgrade.

  5. 9:14 am: I'd like to help, but I don't know what you mean by "factors."

  6. Bad factors:
    Declining revenues
    Declining advertising pages
    Increased newsprint costs
    Declining circulation
    Increasing FTE costs
    Broken business plan

    Good factors:
    Recognized brand
    Monopoly position in most markets

  7. Is downgrading two notches at a time typical?

  8. 9:14 here -- When they announce layoffs, the stock goes up ... for a millisecond. When Dubow announces a pay freeze, the stock goes up ... for a millisecond. They've been cutting and slashing for months, and yet the stock gets downgraded.

    Business-wise and investor-wise, what is Gannett doing wrong? What steps would help? And why?

    Am I asking for too much? :P

  9. @8:30 p.m.:

    The only thing that would get the stock price moving north again would be evidence that revenues will improve at some time in the foreseeable future. No such evidence exists.

    GCI, and other news companies, have proven they can get profits out of any revenue stream, but if the stream is running dry .... well, you've heard about turnips and blood.

    All the analysts who deal with news outlets say the outlook is dim with no sunrise in sight -- even if the overall economy stabilizes and starts to inch back into growth.

    So: It's going to get worse for some unknown amount of time before the signs look good again.

  10. Could be that all those new digital sales specialists will turn out to be the critical factor that makes the numbers start going up again. Let's hope.

  11. Then there is ALL THAT DEBT.
    Gannett has bought everything it ever wanted ... newspapers, companies, real estate ... always piling debt on top of dept. This likely was OK back in the 25% profit days, but it has to be a total drag now.

  12. So does it make sense for Gannett to unload properties to reduce debt or to buy properties (or shares of properties) to increase opportunities for making a profit?

    If they were to sell off stuff, would that make them look bad in the eyes of the shareholders?


Jim says: "Proceed with caution; this is a free-for-all comment zone. I try to correct or clarify incorrect information. But I can't catch everything. Please keep your posts focused on Gannett and media-related subjects. Note that I occasionally review comments in advance, to reject inappropriate ones. And I ignore hostile posters, and recommend you do, too."

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