McClatchy credit rating falls but CEO does nicely

From Sacbee.com (a McClatchy owned site) comes news I’ll post in italics, with my interlinear comments in plain.

McClatchy is the parent company of the liberal/leftist Raleigh News & Observer.

Sacbee.com begins - - -

The McClatchy Co.'s credit rating was lowered again Tuesday, but the downgrade won't cost the Sacramento-based newspaper chain any money.

Meanwhile, McClatchy has disclosed in its proxy statement that Chairman and Chief Executive Gary Pruitt made $4.6 million in total compensation last year, down from $5.6 million in 2006. McClatchy officials said Pruitt's compensation actually dropped further than that, based on an alternative calculation method.

I don’t know much about the “alternative calculation method,” but according to AOL m&f McClatchy (MNI) is trading right now at $11.04, down from its 52-week high of $34.32.

Moody's Investors Service dropped McClatchy's rating one notch, to Ba3 from Ba2, saying it believes The Bee's owner's revenue decline is worsening. Moody's already downgraded McClatchy in January.

The downgrade by Moody's takes McClatchy deeper into non-investment grade, or junk bond, status. Junk bond companies are considered riskier than investment grade companies.

That not good, but here comes the positive spin from McClatchy & Sacbee.

[ Ken in Dallas commented: The McClatchy spokesperson was correct. There is no immediate impact on interest payments. There are, of course, other significant consequences.

1. Any additional bonds or bank loans will carry a higher interest rate as well as more stingent loan covenants.

2. The holders of the current bonds experienced a reduction in their discounted value.

3. The stock price will be impacted in a negative way over time.

If the company doesn't understand the impact of a bond downgrade to junk bond status, they are living in La-La land. ]

But while downgrades usually mean higher interest expenses, this one won't, said McClatchy Treasurer Elaine Lintecum. The company's bonds carry a fixed rate, while its bank loans were just rewritten so the interest rate is based on debt ratios, she said.

"The practical effect (of the downgrade) is none," she said. "No additional interest costs as a result of the downgrade.

Lintecum is wrong to say there is no “practical effect.” There may not be an immediate financial cost, but when Moody downgrades you, especially when you’re already in “the junk house,” it has "a practical effect."

Like other publishers, McClatchy's revenue and profits have fallen because of competition from the Internet and a weakening economy. McClatchy is especially hard hit because one-third of its business comes from California and Florida, two states suffering some of the worst of the real estate downturn.

In truth, McClatchy has been in a long-term slide. Five years ago its stock traded near $60.

McClatchy's revenue dropped 7.9 percent last year and is off 13.2 percent so far this year, and the company's stock price has lost about two-thirds of its value in the past year.

The stock closed Tuesday at $11.10, up 40 cents, on the New York Stock Exchange. Moody's made its announcement after the market closed.

McClatchy said in its annual proxy statement to the Securities and Exchange Commission that Pruitt's $4.6 million in compensation included $1.1 million in base pay, an $800,000 performance bonus, as well as about $2 million in stock and option grants and other forms of compensation.

Gee, only an $800,000 performance bonus. He's got the stock over $10., right?

The rest of the story is interesting reading for the spinning McClatchy does concerning Pruitt’s compensation package.

You can read it all here.

Hat tip: journalist friends who sent the link.