Moody's Adds Insult To Gannett Dividend Injury

Moody's just piledrived Gannett and cut its bond rating to junk. The company which was downgraded to the lowest IG rating Baa3 on February 2, just got the last kiss as Moody's cut its unsecured debt rating to Ba2. Not as much harsh language as S&P has been dispensing lately, just the sad reality of the situation as Gannett enters Junkville.

The downgrade reflects Moody's expectation that changing media consumption habits and the heightened level of price and volume competition that Gannett faces as it seeks to monetize its strong local-market content positions in its traditional media and newer digital distribution channels will continue to erode operating cash flow. Moody's believes these pressures along with a deep cyclical slowdown in advertising spending and high operating leverage will lead to a weakening of credit metrics to speculative-grade levels for at least the next two years despite revenue-enhancement initiatives and significant cost reductions. Gannett's 90% dividend reduction will help cushion the pressure on free cash flow from operating declines and allow for meaningful debt repayment in 2009 and 2010, but is an indication of the near and long-term operating challenges. In Moody's view, the operating pressures are also diminishing Gannett's traditional ability to mitigate increases in leverage during cyclical downturns through debt reduction, a factor that in the past had supported a higher rating.

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