Postmedia Network Inc.'s restructuring could hit a wall in 2014 if a $60-million credit line isn't renewed, ratings agency Moody's said as it issued a warning about the newspaper publisher's future.
The ratings agency said the company – which publishes the National Post and a stable of metropolitan newspapers such as the Ottawa Citizen and Edmonton Journal – has rarely dipped into the account, but could be tempted to do so as it deals with fluctuating revenues and restructuring costs. The credit line comes up for renewal next year, and losing it would cut the company's access to an easy source of emergency financing.
"While Postmedia does not typically use [the account], this may change based on the timing and magnitude of future restructuring actions," Moody's wrote in its outlook note. "If the facility is not renewed, the loss of flexibility would add to ongoing business pressure."
Ratings agencies assess a company's ability to pay its debt, and their opinions can affect the interest companies pay when they borrow money.
Postmedia faces the same pressures as publishers around the world – print advertising is decreasing faster than digital advertising is increasing. Its $470-million debt adds another layer of difficulty, and the company has moved aggressively to cut costs and pay down what it owes.
The publisher posted a $112-million loss in its last quarter as print advertising dropped 17 per cent at its daily papers, although $94-million of the loss was only on paper as the company took a writedown, acknowledging the business wouldn't be as profitable in the future.
A year ago Postmedia said it wanted to cut $120-million out of its operating budget within three years and rebuild itself into a more nimble digital business. It said earlier this month it had managed to find $62-million in savings so far through a series of changes that has seen some papers cut publishing days, the publisher position eliminated at most of its dailies, millions of dollars cut from the payroll, and real estate sold.
Moody's only lowered its outlook – to negative from stable – because the company is expected to generate up to $25-million in cash flow over the next year and has $56-million in the bank. It said it would lower the publisher's rating if advertising drops quicker than expected, and would consider raising it if Postmedia's digital initiatives starting showing results sooner than expected.
"As the company transitions to a digital age news gathering and distribution operation, the magnitude and sustainability of related cash flow is uncertain," Moody's wrote.
"Reciprocally, the magnitude and sustainability of legacy print-based cash flow, which is needed to bridge-fund the transition by servicing and repaying debt, is also quite speculative. While management has been disciplined in reducing the company's debt burden, the serviceability of Postmedia's remaining debts continues to be uncertain."