Fitch Downgrades McClatchy IDR to 'BB+'; Affirms Facility at 'BBB-'

Business Wire,  May 7, 2007  

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CHICAGO -- Fitch Ratings has downgraded McClatchy's issuer default rating (IDR) and senior unsecured notes (assumed as part of its acquisition of Knight Ridder in June 2006) to 'BB+' and affirmed the bank facility rating at 'BBB-'. The Rating Outlook is Stable.

The McClatchy Company

--Issuer default rating (IDR) to 'BB+' from 'BBB-';

--Senior unsecured bank credit facility affirmed at 'BBB-';

--Senior unsecured term loan affirmed at 'BBB-';

--Commercial paper to 'B' from 'F3'.

Knight-Ridder, Inc.

--Issuer default rating (IDR) to 'BB+' from 'BBB-';

--Senior unsecured notes/debentures to 'BB+' from 'BBB-'.

The rating action reflects the implications of recent credit rating downgrades which will result in the credit facility and term loan receiving an unsecured guarantee from material operating subsidiaries; providing it priority over unsecured claims under a default scenario (assuming the court would not force consolidation). As stated in our press release on June 27, 2006, 'Fitch recognizes that features of credit facility could have implications for the KRI bonds that MNI assumed as part of the acquisition as rating triggers in the facility could result in the borrower guaranteeing the facility.'

Also, the rating action incorporates the risk that given the company's depressed stock price and credit ratings, management may extend its debt repayment time frame by taking some modest shareholder friendly actions in the coming years. Even without a shift in financial policy, operating performance has been weaker than anticipated and Fitch believes that barring further asset sales it could take longer than initially anticipated to restore its balance sheet to investment grade levels.

However, Fitch notes that operating weakness has largely stemmed from elements of the company's business that Fitch understood were volatile; particularly classified advertising (and California and Florida real estate classifieds specifically). McClatchy has met Fitch's expectations on the elements of its plan that Fitch believes it has more explicit control over: retail (local) advertising growth, expense containment and exclusive dedication of asset sale proceeds and free cash flow toward debt repayment. Fitch remains focused on these three elements in evaluating the company's financial policies and its performance as a sound operator.

The company has ample liquidity. It has $264 million available on its five-year $1 billion revolving credit facility due 2011 at Dec. 31, 2006. Under its credit facility (as amended Apr. 2, 2007), the financial leverage covenant is 4.75 times (x) debt-to-rolling latest 12-month (LTM) EBITDA through Sept. 28, 2008, stepping down to 4.25x from Dec. 28, 2008 through Sept. 27, 2009 and 4x from Dec. 28, 2009 and thereafter.

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.

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