DBRS has announced that it:
has today confirmed its long-term and preferred share ratings on Transcontinental Inc. (Transcontinental or the Company) at BBB (high) and Pfd-3 (high), respectively. The trends have been changed to Negative. While the Company’s business risk profile and financial profile continue to support a rating above the BB (high) business risk rating for the printing industry, DBRS expects the structural factors that Transcontinental is facing (such as declining demand for print and pricing pressure), along with increased competitive forces (both factors contributed to lower revenue and EBITDA for the two most recent quarters), to persist and potentially accelerate further for Transcontinental over the medium term. As such, these challenges could reduce the Company’s rating differential relative to the printing industry.
The Negative trend reflects DBRS’s expectation that structural forces in both Transcontinental’s Printing and Media segments will persist and could accelerate with excess capacity in the printing industry and a structural shift to digital forms of media affecting both segments. In fact, DBRS notes that, from an industry perspective, digital advertising in the United States surpassed newspaper print advertising for the first time in 2011 (likely just below this level in Canada at the end of 2011), with digital advertising in the United States expected to surpass combined newspaper and magazine print advertising spending in 2012.
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From a financial risk perspective, Transcontinental has demonstrated healthy free cash flow conversion, leverage and credit metrics that are above the industry average. This includes EBITDA interest coverage of over 9.0 times, cash flow-to-debt of 0.40 times and gross debt-to-EBITDA of 1.76 times. However, with organic revenue and EBITDA growth under pressure, DBRS believes free cash flow will be directed to small-to-medium acquisitions and increasingly toward shareholder-friendly initiatives. In fact, DBRS notes that inorganic growth must be undertaken by Transcontinental in order to support the dividend growth model that the Company strives to maintain.
DBRS believes Transcontinental’s business risk profile continues to weaken due to a structural shift from traditional forms of media to new forms of media. Competitive forces in the traditional printing industry should continue to intensify with ongoing excess capacity, while the new forms of media are also highly competitive with lower barriers to entry and a less-proven profit model.
TCL.PR.D was added to TXPR in the January, 2012, rebalancing after having been removed in July, 2011. It was upgraded to P-3(high) by S&P in December, 2010.
TCL.PR.D is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.
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TCL.PR.D: Confirmed at Pfd-3(high), Trend Now Negative, says DBRS
DBRS has announced that it:
TCL.PR.D was added to TXPR in the January, 2012, rebalancing after having been removed in July, 2011. It was upgraded to P-3(high) by S&P in December, 2010.
TCL.PR.D is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.
This entry was posted on Saturday, April 21st, 2012 at 1:03 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.