Fairfax debt rating cut to junk by S&P

Thursday 14th May 2009

Fairfax Media, Australia’s second-largest publisher, had its debt rating cut to junk status by Standard & Poor’s (S&P), which cited ongoing deterioration in the company's advertising earnings. Its shares tumbled 7%.

The company’s long-term rating was lowered to BB+ from BBB-, with a stable outlook. S&P had lowered the outlook to negative in February, saying it needed to show an improvement in financial metrics to remain an investment-grade company.

"Although Fairfax's credit metrics have benefited from an equity issue and asset sales, the weaker earnings outlook for the remainder of calendar 2009 has resulted in underlying credit metrics for the company moving outside tolerances for the BBB- rating,'' S&P credit analyst Peter Sikora said.

The publisher of the Sydney Morning Herald and Dominion Post yesterday said annual profit will drop 28% to around A$600 million. The company slashed 550 jobs last year and has placed a freeze on executive salaries in 2009-2010. It raised A$500 million through an institutional placement in March which it used to pay down debt and strengthen its balance sheet.

In the first half, Fairfax had a loss of A$365 million as advertising revenue dwindled.The rating cut will add about A$10 million to Fairfax’s net interest expense in the 2010 year, chief executive Brian McCarthy said in a statement today.

The company, which is disappointed with the downgrade, “remains comfortably within its various financial covenants,” he said.

The shares fell 7.5 cents to A$1 on the ASX/S&P 200 index today, and have sunk 26% in the year-to-date.“We are confident that our diversified market positions, strong balance sheet and operational focus will allow us to weather the current economic conditions,” McCarthy.

Businesswire.co.nz

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