Moody's rates GateHouse Media loans B1

Moody's Investors Service said it assigned B1 ratings with loss-given-default assessments of LGD3 (35%) to GateHouse Media Operating, Inc.'s proposed $40 million senior secured first-lien revolving credit facility due 2014, $670 million senior secured term loan B due 2014 and $250 million senior secured delayed-draw term loan due 2014.

The B1 corporate family rating, B2 probability-of-default rating and the B1 (LGD3, 35%) ratings on the company's $40 million senior secured first-lien revolving credit facility due 2013 and $570 million senior secured first-lien term loan facility due 2013 were affirmed.

The outlook is stable.

Proceeds from the proposed loans will be used to acquire SureWest Directories from SureWest Communications for $110 million and to refinance $573 million of existing debt.

The agency said the affirmation reflects GateHouse's continuing high leverage, the acquisitiveness of its management team, its vulnerability to spending on print advertising, overall declining circulation trends for its newspapers, the impact of rising newsprint costs, the limited growth prospects of the newspaper publishing industry and the company's dividend policy, which will likely consume most of its free cash flow to the detriment of debtholders.

The ratings are supported by the defensibility and diversification of GateHouse's community newspaper model, the long-standing reputation of its newspaper titles and barriers to competitive entry due to the inability of most of its small rural markets to support more than one local newspaper, Moody's said.

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