• Editor & Publisher, Thursday, September 17, 2009 9:19 PM

Moody's is downgrading its credit ratings on GateHouse Media's approximately $1.2 billion in debt, declaring the publisher's capital structure "unsustainable." Moody's also raised the possibility that the community newspaper company may choose bankruptcy protection as debt payments come due after 2010.

Moody's says GateHouse has aggressively cut expenses and has won relief from its lenders, but the company is likely to incur losses in free cash flow that will make servicing the debt difficult. "Management may conclude that a distressed exchange or pre-packaged bankruptcy filing is the optimal solution," says senior analyst John Page.

Under principal ownership by the private equity firm Fortress Investments Group, GateHouse expanded rapidly by buying newspapers that were supposed to generate more free cash flow that in turn would be used to pay high dividends supporting a high stock price. The industry recession wreaked havoc on that plan.

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