News and Entertainment Media Facing Failure

Reports of Defaults Pending in the Industry

Mar 11, 2009

Moody's Investment Services recently published a list of media and newspaper companies that it deems as most at risk in the near future.

Moody’s Investment Services published its “U.S. Bottom Rung” list of companies that the corporate credit ratings agency thinks are at most risk of defaulting on their debt. On March 10, 2009 it made the list public with names such as Eastman Kodak, Blockbuster Inc, Reader's Digest Association Inc are almost household names. There are 283 companies on the list, which is current as of March 1, 2009 including some near and dear names for people who love the media business.

“Sounds like Moody’s may be trying to get out in front on defaults, given they were perhaps a little behind on subprime mortgages and commercial mortgage-backed securities,” said David Resnick, managing director at investment banking firm Rothschild Inc. which works on many corporate bankruptcies and restructurings.

Moody's Failure to Warn of Impending Crisis in Automakers and Banks

According to the Wall Street Journal, there was much criticism in Congress during hearings last year about exactly how effective rating systems, such as Moody's and Standard and Poor's Corp, are because of their failure to alert regulators about what was happening in the financial community as the downturn was becoming more evident. Moody’s and credit-rating rival Standard & Poor’s Corp., were criticized by the Senate in hearings late last year about how effectiveness the ratings agencies were in evaluating those now receiving bailout funds.

This time it appears they are getting our in front of the coming defaults among those name in the report.

But there is some concern that by naming some of these companies, it could push them off the cliff as creditors become nervous about their ability to pay their bills. For investors, this could create a message that these companies are already in the junk category.

Why Moody's Rating are Important

Moody's pronouncement carries weight because it rates, analyzes, and tracks debt covering:

This helps investors analyze the credit risks associated with fixed income securities and markets including insurance policies and derivative transactions. Moody's also publishes investor oriented credit research, including in depth that of major debt issuers and industry studies. It maintains a website for its clients which provides the information in a real-time environment.

There is some risk in Moody releasing the names as it could effect the stock market and cause further damage to the companies named by it. A wholesale selling off of their shares would further depress their ability to obtain the credit they need to keep functioning. In all probability it won't make that much difference because of the credit rating, their stocks are already in the "junk" category.

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