Moody’s and S&P upgrade McClatchy after bond issue eases worries over publisher’s debt burden

Moody’s and S&P upgrade McClatchy after bond issue

SACRAMENTO, Calif. — Moody’s Investors Service and Standard & Poor’s have both upgraded their credit ratings on the McClatchy Co. after the newspaper publisher closed on the sale of $875 million in bonds.

The company used the sale of 11.5 percent 7-year notes to buy back older debt, pushing back the deadline for paying off its borrowings and locking in a more stable — though higher — interest rate. The move should ease jitters about the company’s debt burden, which drove the company’s stock as low as 35 cents a share last year.

S&P upgraded McClatchy’s credit rating by four notches “B-” from “CC,” citing both the refinancing the easing of advertising revenue declines at the company’s newspapers. Moody’s hiked McClatchy’s “probability of default” rating one notch “Caa1″ from “Caa2.” Both ratings are still considered non-investment, or “junk,” grade.

Like the rest of the newspaper business, McClatchy saw ad spending drop off during the recession. And with more readers and advertisers shifting to the Web, where ad rates are significantly lower, analysts have raised doubts about the long-term health of newspaper companies.

Still, things have been improving at least modestly for McClatchy, which publishes The Miami Herald and 29 other dailies. Its ad revenue decline in the fourth quarter shrank to 20.5 percent from a 28.1 percent the quarter before. Cost cutting helped the company turn a profit of $25.8 million, reversing a year-earlier loss.

McClatchy said late Thursday that it was able to pay off $567.3 million of debt it owes to its banks, representing most of the $614 million that it had offered to pay down.

The company said that 87 percent of its $1.96 billion in debt now has a fixed rather than floating interest rate.

As previously announced, McClatchy also has agreements to buy back $147.2 million of the total $166 million in 7.125 percent notes due next year and $23.9 million of the total $24 million in 15.75 percent notes due in 2014.

The company’s stock was down 14 cents, or 3 percent, to $4.55 in morning trading.