More bad news for the New York Times... tick tock, tick tock

By Thomas Lifson

Moody's Investor's Services, the bond rating agency, has notified the New York Times Company that its bond rating may decline, according to Editor & Publisher. Without changing the current Baaa3 rating (at least for the moment), NYTCo's outlook has been downgraded from "stable" to "negative."

"The change in the rating outlook to negative reflects Moody's concern that a continued deterioration in the company's advertising revenue could make it increasingly challenging for the company to bring metrics in line with the rating in 2009 as anticipated in the prior stable rating outlook," wrote senior analyst John E. Puchalla and Corporate Finance Group Managing Director Alexandra S. Parker.

A Baa3 rating qualifies as investment grade, enabling many funds to hold its unsecured debt. If the rating were to decline to below investment grade (and it is perilously close now), many funds would no long hold NYTCo's debt securities, and their prices would decline. This could make refinancing that $725 million debt, as it comes up and must be rolled over, much more expensive for NYTCo.

...the ratings firm added that it is currently operating at levels more consistent with a rating lower than Baa3. The investment grade rating, it added, is predicated on better performance in 2009.

In other words, if NYTCo fails to improve its performance, the current "investment grade" rating is in peril. So far, the decline in advertising is accelerating, while cost cutting efforts have not realized their announced goals.

The clock is ticking.

Hat tip: David Paulin