Fairfax Media, Australasia’s largest integrated metropolitan, rural and regional, print and online digital media company, has had its credit rating downgraded by Standard & Poor because of concerns over a “lack of visibility” in the recovery of earnings.

Fairfax’s credit rating was revised from BBB- to BB+, thus removing its “investment grade” status and reclassifying it as a “speculative grade” borrower. The reclassification means that the company will be forced to make an extra A$10 million ($7.5 million U.S.) a year in interest payments on its A$1.8 billion debt.

The downgrading was announced last week, just two days after Fairfax revised its earnings forecast for this financial year by 10 percent to A$600 million. Fairfax’s announcement was based on deteriorating advertising sales, both in general advertising and also in Fairfax’s substantial classifieds business – deterioration Fairfax CEO Brian McCarthy puts down to global economic conditions, not a trend away from newspapers.

The most obvious deterioration has been in the number of classifieds listed in Fairfax’s masthead products, The Sydney Morning Herald and Melbourne-based The Age.
Crikey.com reports that by page count alone, average classifieds advertising pages in The Age, SMH and Financial Review were down 55 percent year-over-year in April, following declines of 47 percent in March, 41 percent in February and 40 percent in January.

Employment ads in the Sydney Morning Herald fell 60 percent, real estate 50 percent and automotive 80 percent. At The Age, recruitment and auto ad pages declined by around 65 percent in April, while the decline in real estate pages fell 65 percent compared to last year. At the AFR, display classified property ads fell 62 percent and recruitment fell 49 per cent on a year ago.

McCarthy has said that the one thing Fairfax’s current predicament is not the result of, is the same terminal decline in newspaper sales that has afflicted North American and European newspaper houses.  

Three months ago, he described Fairfax’s declining revenues as a “short-term thing” and said that it was “just a matter of working through the cycle.” That belief seems to have made Standard & Poor’s downgrading all the more galling to the Fairfax chief and immediately released a statement to the Australian Stock Exchange expressing his disappointment.

“Although we are disappointed with the decision of Standard & Poor’s, we are confident that our diversified market positions, strong balance sheet and operational focus will allow us to weather the current economic conditions and take advantage of any upturn when it occurs,” he said.