Good News: The New York Times’ Credit Is Investment Grade
Summary
- Moody’s B1 credit rating on The New York Times Company materially overstates the company’s credit risk.
- We rate the company five notches higher as a lower medium investment grade credit, given their strong cash profile and robust recovery rate.
- Meanwhile, CDS markets are materially understating credit risk with a CDS of 51bps, relative to our Intrinsic CDS of 219bps.
Cash Flow Profile
Moody’s (NYSE:MCO) is materially overstating the credit risk of The New York Times Company (NYSE:NYT) with its B1 rating. Our fundamental analysis highlights a much safer credit profile for NYT, whose stable cash flows cover all their obligations including debt maturities, except in 2016. Although NYT’s cash flows would fall short of their 2016 debt maturity, their sizable cash on hand should allow them to cover this as well. They also have a robust 172% recovery rate on unsecured debt, which should allow them access to credit markets if they choose to refinance their debt. We, therefore, rate NYT five notches higher at an IG4 credit rating, or a Baa2 equivalent using Moody’s ratings scale. (To register for free access to our corporate credit ratings, please click here.)
On the other hand, CDS markets are materially understating NYT’s credit risk with a CDS of 51bps relative to an Intrinsic CDS of 219bps, while cash bond markets are accurately stating credit risk with a cash bond YTW of 2.676% relative to an Intrinsic YTW of 2.886%.
We produce a Credit Cash Flow Prime chart for The New York Times Company, as we do for every company we evaluate. The chart provides a far more comprehensive view of credit fundamentals than traditional ratio-based analyses. It shows the cash flow generation and cash obligations related to the credit of the firm, adjusted for non-cash financial statement reporting distortions from GAAP. The blue line indicates the gross cash earnings (Valens’ scrubbed cash flow number) expected to be generated based on consensus analyst estimates and Valens Credit’s own in-house research team. The blue dots above that line include the cash available at that time while the blue triangles indicate that same amount plus any existing, available lines of credit.
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