By Fitzgerald, Mark
Editor & Publisher
GateHouse Media is likely to default under its credit agreement unless it can negotiate an amendment to its covenants or get a cash injection from its largest stakeholder, Moody's Investor Service says in a report downgrading the community newspaper publisher's credit and probability of default ratings.
Moody's downgraded GateHouse's Corporate Family rating to Caa1 from B2. Under Moody's definition, the new rating signifies a "substantial risk" of default.
Moody's also downgraded its Probability of Default rating to Caa2 from B3.
"The downgrade reflects Moody's heightened concern that GateHouse could face a near-term default under the financial covenants of its loan agreement, absent an amendment or another equity cure from its largest owner, Fortress Investment Group LLC," Moody's Senior Analyst John Page wrote.
Moody's also kept GateHouse on a negative outlook, suggesting another downgrade is likely.
"The negative outlook reflects GateHouse's very tight liquidity profile, its reliance upon proposed asset sales to provide financial flexibility, the probability that the company's softening same-store sales may worsen closer to the double digit declines experienced by many of the nation's large newspaper publishing companies, and Moody's concern that current market valuations may prove insufficient to provide full recovery to lenders, in a distress scenario," Page wrote.
Moody's is also concerned that GateHouse will continue to pursue its strategy of fast-paced acquisitions to grow revenue, even in these "recessionary-like market conditions," he said. …