A steep decline in cash flow at the parent company of the Orange County Register drove a further decline into junk status for the debt of Irvine-based Freedom Communications Inc.
Debt rating company Standard & Poor’s lowered its rating on Freedom’s secured credit lines from “CCC+” to “CCC,” according to an Associated Press report.
Any rating below “BB” is considered less than investment grade, or junk status.
S & P; cited “challenging operating conditions” in the newspaper sector for its revision.
Along with the Register, Freedom owns dailies, weekly community papers and television stations across the country. It has yearly revenue of about $750 million.
In September, Freedom went into technical default on terms agreed to with lenders. Falling profits for the prior 12 months put Freedom’s debt at more than five times its profits, Chief Executive Scott Flanders said.
The company continues to make debt payments, he said.
“So we have not had a financial default,” Flanders said. “We have only had a technical default. What we have been doing since for the past six months is working with our banking group of 26 different banks to negotiate a new credit agreement to reflect the difficult operating environment that we face.”
The company’s lenders “have been very cooperative,” he said.
The newspaper industry has seen a rash of failures and bankruptcies as acquisition-related debt and the recession prove to be a killer combination. Among those to have filed for bankruptcy is Chicago’s Tribune Co., owner of the Los Angeles Times.
Freedom isn’t as indebted as some other newspaper companies, Flanders said.
“They in the end were left with no alternative,” he said. “We have other alternatives, which doesn’t mean it’s impossible. It is possible, but unlikely.”
