Here's what S&P said, and the parenthesis are theirs:
- Standard & Poor's Ratings Services today lowered its corporate credit rating on MediaNews Group Inc. to 'CCC' from 'B-'. The rating, along with all other issue-level ratings on MediaNews' debt, was removed from CreditWatch, where it was placed with negative implications Feb. 28, 2008. The rating outlook is negative.
We also lowered our issue-level rating on MediaNews Group Inc.'s senior secured credit facilities to 'CCC+' (one notch higher than the 'CCC' corporate credit rating on the company) from 'B-'. A recovery rating of '2' was assigned to these loans, indicating that lenders can expect substantial (70% to 90%) recovery in the event of a payment default.
At the same time, we lowered our issue-level rating on MediaNews' subordinated debt to 'CC' (two notches lower than the 'CCC' corporate credit rating) from 'CCC'. A recovery rating of '6' was assigned to these securities, indicating that lenders can expect negligible (0% to 10%) recovery in the event of a payment default.
"The downgrade of the corporate credit rating to 'CCC' reflects our expectation for a meaningful year-over-year increase in the rate of cash flow decline in 2008," said Standard & Poor's credit analyst Emile Courtney. "In addition, the company may not be able to avoid violating covenants in the company's bank facility over the near-to-intermediate term without recurring
liquidity-enhancing transactions with its business partners."
While we had previously stated on several occasions that we believed MediaNews' liquidity position could potentially be enhanced by transactions with partners of solid credit quality, we now expect that the company intends to manage its liquidity position by pursuing a series of incremental support transactions. Even though this may reduce the likelihood of a near-term
covenant violation, it is unclear whether business partners will continue to support MediaNews if the operating environment continues to deteriorate.
Moreover, we believe that the company is unlikely to maintain its current capital structure over the long term. At the current rate of cash flow decline, it appears increasingly likely that MediaNews will pursue a restructuring of some kind over the intermediate term.
In April 2008, MediaNews amended bond indentures to end its obligation to publicly file its financial statements. We do not anticipate that the company will publicly announce future liquidity enhancement actions, nor is it likely to announce cash flow trends; however, we would incorporate any such developments into the ratings if they happen.