The McClatchy Company Bankruptcy Threat: A Recap on Sinking Newspaper Industry
A lot of what is new in the newspaper industry today is trouble. With the average probability for failure up to 99% - since the start of the Great Recession - it is unsettling to discover such risk in your portfolio. Some companies are faring worse - including the subject of our most recent High Risk Report, The McClatchy Company.
With debt through the roof and consistently poor earnings, this publishing and printing company may be on the fast track to bankruptcy.
Newspapers are one of many victims of digital disruption
With the growth of online news sites, competition for readers has left newspapers in the dust. As readers leave, critical advertisers pull out critical income. The industry as a whole shows a 99% increase in risk of failure.
Although some news organizations have pivoted and taken advantage of digital, many local papers aren’t as agile. The McClatchy Company, which owns 29 local dailies, has announced restructuring to improve their digital performance, but it may be too little, too late.
What factors led to McClatchy’s troubles?
Although the overall newspaper industry is risky, McClatchy is undergoing significant financial difficulties and much higher bankruptcy risk than its peers. Red flags include:
- Staggering debt — McClatchy closed 2016 with $846 million in total debt
- Bottom quartile of key performance indicators, as compared to industry peers
- Net worth in the red for the past five quarters
- Meager cash and quick ratios
- Anemic rates of return
- FRISK® score — 96% accurate in predicting public company bankruptcy — deep in the red since early 2016
McClatchy’s FRISK® score of “1” indicates a high likelihood of bankruptcy coming soon. This proprietary model does a better job than certain more common metrics, including payment history.
Use the right metrics to predict risk
Payment history — especially DBT index — is a common measurement used to predict credit risk. In the case of public companies, however, it rarely hits the mark.
A glance at The McClatchy Company metrics shows its DBT is a solid and consistent 8–9, which may fool credit managers into thinking everything is smooth sailing with this company. At the same time financial indicators such as the FRISK® score –- give a more accurate assessment of bankruptcy risk.
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of more than 56,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.