Fitch Ratings has placed Dow Jones & Company, Inc.'s
(Dow Jones) 'A-' Issuer Default and senior unsecured debt ratings on
Rating Watch Negative. The ratings apply to approximately $472 million
of outstanding debt.
The rating action follows today's announcement by the company that it has entered into a definitive settlement agreement to conclude all litigation with Market Data Corp. (MDC) and Cantor Fitzgerald Securities (Cantor) relating to Dow Jones's obligation under a guarantee it issued in 1995 to MDC and Cantor. In connection with the settlement, Dow Jones will pay an aggregate $202 million to MDC and Cantor by March 27, 2006, and the parties will grant one another full mutual releases.
The company stated that it will initially finance the settlement with short-term borrowings and is currently evaluating a number of alternatives to refinance these amounts on a long-term basis. The resolution of the Rating Watch will be determined when definitive long-term financing plans are disclosed. As stated previously by Fitch, debt-financed settlements on a long-term basis would have a negative impact Dow Jones's credit ratings. In addition, the incremental interest expense from a debt-financed deal would reduce 2006 cash flow that already has one-time cash outflows related to the company's web-width reduction at the Wall Street Journal and management restructurings.
As part of its rating evaluation, Fitch anticipates reviewing the company's financing strategy with Dow Jones management. Fitch also expects updates on the company's expected long-term cost savings from the aforementioned projects, and the company's Wall Street Journal International units, as well as an update on 2006 performance of the company's operating businesses, including expected incremental cash flows from the Weekend Edition and Marketwatch.com. Resolution of the Rating Watch Negative will also incorporate Fitch's view that newspaper companies will continue to face significant secular issues. Specifically, Fitch expects there will be continued migration of readers toward electronic media, and advertising dollars are expected to follow those outlets.
Dow Jones' current liquidity position is adequate but is expected to become more strained through 2006 than in previous years. The company has a cash balance of $10 million and free cash flow of approximately $50 million for the year ended Dec. 31, 2005. Liquidity is further supported by approximately $53 million available on the company's $300 million credit facility due June 24, 2009. The company also has a $140 million credit facility (fully available) maturing June 2006.
At Dec. 31, 2005, the company had $472 million of debt, comprising $247 million of commercial paper borrowings and $225 million of three-year senior unsecured notes due February 2008. The company issued these notes to help finance the MarketWatch acquisition. The company's bank facilities had already classified as debt a $250 million legal reserve for the aforementioned litigations in the maximum leverage covenants (3.5 times maximum). Fitch expects the company to be in compliance with this covenant post settlement. Also, the company's credit facilities contain change of control provisions that allow for acceleration of payments should anyone outside of the Bancroft family obtain more than 35% of the voting stock (i.e., currently hold more than 60% of the outstanding voting shares). The indenture contains a cross-acceleration provision.
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.
The rating action follows today's announcement by the company that it has entered into a definitive settlement agreement to conclude all litigation with Market Data Corp. (MDC) and Cantor Fitzgerald Securities (Cantor) relating to Dow Jones's obligation under a guarantee it issued in 1995 to MDC and Cantor. In connection with the settlement, Dow Jones will pay an aggregate $202 million to MDC and Cantor by March 27, 2006, and the parties will grant one another full mutual releases.
The company stated that it will initially finance the settlement with short-term borrowings and is currently evaluating a number of alternatives to refinance these amounts on a long-term basis. The resolution of the Rating Watch will be determined when definitive long-term financing plans are disclosed. As stated previously by Fitch, debt-financed settlements on a long-term basis would have a negative impact Dow Jones's credit ratings. In addition, the incremental interest expense from a debt-financed deal would reduce 2006 cash flow that already has one-time cash outflows related to the company's web-width reduction at the Wall Street Journal and management restructurings.
As part of its rating evaluation, Fitch anticipates reviewing the company's financing strategy with Dow Jones management. Fitch also expects updates on the company's expected long-term cost savings from the aforementioned projects, and the company's Wall Street Journal International units, as well as an update on 2006 performance of the company's operating businesses, including expected incremental cash flows from the Weekend Edition and Marketwatch.com. Resolution of the Rating Watch Negative will also incorporate Fitch's view that newspaper companies will continue to face significant secular issues. Specifically, Fitch expects there will be continued migration of readers toward electronic media, and advertising dollars are expected to follow those outlets.
Dow Jones' current liquidity position is adequate but is expected to become more strained through 2006 than in previous years. The company has a cash balance of $10 million and free cash flow of approximately $50 million for the year ended Dec. 31, 2005. Liquidity is further supported by approximately $53 million available on the company's $300 million credit facility due June 24, 2009. The company also has a $140 million credit facility (fully available) maturing June 2006.
At Dec. 31, 2005, the company had $472 million of debt, comprising $247 million of commercial paper borrowings and $225 million of three-year senior unsecured notes due February 2008. The company issued these notes to help finance the MarketWatch acquisition. The company's bank facilities had already classified as debt a $250 million legal reserve for the aforementioned litigations in the maximum leverage covenants (3.5 times maximum). Fitch expects the company to be in compliance with this covenant post settlement. Also, the company's credit facilities contain change of control provisions that allow for acceleration of payments should anyone outside of the Bancroft family obtain more than 35% of the voting stock (i.e., currently hold more than 60% of the outstanding voting shares). The indenture contains a cross-acceleration provision.
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.