Fitch: Newspaper Co. Financial Policy Changes Remain a Risk for Bondholders.

CHICAGO -- As the newspaper industry has come under pressure over the past few years, several companies have radically changed their financial policies and significantly increased leverage in order to attempt to address decelerating growth and weak stock price performance. Management teams that have retained investment grade ratings have been increasingly asked by analysts and investors to explain the potential uses of free cash flow and debt capacity going forward. Investors have asked for a compelling rationale for certain companies' commitment to investment grade ratings.

As stated in recent reports we have published on the industry, Fitch expects that shareholders will continue to place pressures on newspaper companies in general, forcing management teams to further re-evaluate capital structure philosophies. Companies with the single class of stock could be more exposed to this type of shareholder activism. Fitch believes that family or trust-owned enterprises with dual-class stock structures are better positioned to take a longer-term view of the risks and opportunities in the newspaper space and to weather near-term turbulence in the stock markets, thereby better insulating them from shareholder activist-driven event risk. However, while companies with dual-class stock structures may be somewhat insulated from these risks, Fitch continues to caution that if the stock prices remain under pressure, the boards of directors and management teams (at companies with dual classes of stock) may still be similarly pressured to consider management buyouts, other leveraging transactions or large-scale digital acquisitions to attempt to boost their companies' share prices.

Fitch believes there has been a subtle trend among investment grade newspaper companies toward generally softening their public commitments to credit ratings in favor of emphasizing their commitments to driving shareholder value. Last week, Gannett Corp (GCI) and the New York Times Company (NYT) (neither company is rated by Fitch) released earnings and fielded capital structure philosophy questions during their conference calls. NYT is paying down some debt in the near-term, but did not give guidance regarding its capital structure parameters going forward, mentioned it was creating flexibility to pursue opportunities that make strategic sense, and specified that its commitment to investment grade ratings has been important 'historically'. Also, GCI (consistent with prior discussions on the topic) did not commit to particular leverage targets (or ratings) and mentioned it is not opposed to significantly increasing the dividend if there was evidence that such an action would drive the stock price. GCI management stated they are evaluating all options and looking at all opportunities to deliver shareholder value.

While their respective answers do not differ significantly from some of their peers and may not be cause for immediate concern for bondholders, Fitch remains mindful of the intermediate-term event risks that bondholders of newspaper companies continue to face; particularly of newspaper companies with higher investment grade ratings. Fitch believes these two companies and others are not immune to the pressures being felt across the industry as newspaper circulation and advertising revenue trends have been soft in recent periods. Stock prices for the major newspaper players collectively (as well as GCI and NYT individually), have been down in 2004, 2005, 2006 and year-to-date.

While there continues to be many uncertainties, Fitch continues to believe that credit ratings are largely at the discretion of management teams and if they choose to dedicate free cash flow to reduce debt, many could retain their ratings. The question remains whether management teams and their boards can withstand pressure in the face of declining stock prices and maintain bondholder protection at consistent levels.

For additional information on Fitch's approach to the newspaper and broadcasting industries visit www.fitchratings.com.

The following are recent reports that we have published on the industry:

--'U.S. Newspapers and TV Broadcasting Outlooks Remain Negative in 2007' (January 18, 2006);

--'U.S. Newspapers: Heightened Risk in a Downturn' (May 3, 2006).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.