Standard & Poor's drops Black Press outlook to negative

Black Press has gotten some bad news from one of the most influential ratings agencies in the world.

Standard & Poor's has revised its outlook on the Victoria-based publisher from "B/stable" to "B/negative".

According to the agency, a "B" credit rating means that the company's debt is "more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments".

The drop to B/negative was due to "the ongoing headwinds the company faces with revenue and profitability declines given difficult industry fundamentals, as well as refinancing risk".

Black Press owns 25 publications in the Lower Mainland and Fraser Valley, including the West Ender, Richmond News, Surrey North Delta Leader, North Shore Outlook, and Tri-City News. In addition, it owns papers in other parts of B.C., Alberta, Washington state, Ohio, and Hawaii.

According to the rating agency, revenue fell 3.5 percent in the fiscal year ending on February 29, 2012. Earnings before income tax, depreciation, and amortization were down 6.3 percent.

"Given the slow economic recovery and declining industry advertising sales, we expect the company's performance to remain sluggish this year," Standard & Poors reported. "Furthermore, Black Press faces refinancing risk with its senior secured bank facilities maturing in August 2013.

Black Press is a private company, so therefore it's not required to release financial statements. Publicly traded Torstar Corporation, which owns the Toronto Star, has a 19.35-percent stake in Black Press, according to its most recent quarterly financial statement

Torstar reported that for the three months ending on March 31, it would have reported $0.6 million in income from its Black Press stake, as well as a "comprehensive loss" of $2.2 million. "As of March 31, 2012, the unrecognized losses were $1.9 million for Black Press," Torstar stated.

Standard & Poors pointed out in its evaluation that Black Press "followed a clustering strategy with its portfolio of newspapers"—and 72 percent of revenue last year came from the "core geographic market" of Western Canada.

Unfavourable foreign exchange, the loss of a printing contract, and lower advertising sales were cited as reasons for the revenue decline. The rating agency also stated that it believes Black Press "has less-than-adequate liquidity based on refinancing risk and the company's tight leverage covenant cushion".

Black Press isn't the only large Canadian publisher licking its wounds today.

Postmedia Network Canada Corp.—owner of the Vancouver Sun, Province, and numerous other daily papers—saw its B shares trading at $1.26, as of June 6. That's only one penny higher than the 52-week low of $1.25. Last June, Postmedia B shares peaked at $17.75.

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