Looks like the Pioneer Press’ owners need a few more Par Ridders.

On Tuesday, MediaNews Group, the Denver-based chain that acquired the PiPress last year, saw its corporate credit rating drop for the second time in a week and the third time in five weeks. The jargon only resonates with financial wonks — MediaNews carried Standard & Poor’s BB-minus rating in January and now has a B-minus — but safe to say, the company’s hefty debt started out in junk territory and is headed deeper into the landfill.

In a media release, Standard & Poor’s cited “concerns” that deteriorating 2008 finances will put MediaNews in “violation of the leverage covenant in its bank agreement over the near term.” Basically, MediaNews promised the banks its debt would decline relative to the cash its papers produce, but slumping revenues may torpedo the company’s guarantee.

Singleton a master at accessing other people’s money
MediaNews CEO Dean Singleton has been a virtuoso at accessing other people’s money; though his company is private, it reports finances publicly because its sizable debt is traded on public markets. S & P applauds this legerdemain: “We believe the company has a number of good relationships with, and a long track record of, significant asset transactions with partners of solid credit quality.”

Such dealmaking provides a ray of hope, S & P concludes: “We expect that one possible solution … would be to negotiate for a liquidity injection of some kind from a partner.” According to one newspaper analyst who would speak only on background, the best bet is Hearst Corp., which provided funds for MediaNews to buy the Pioneer Press from McClatchy Co. in 2006.

However, Singleton could free up cash in ways that threaten Twin Cities journalism. He can be a ruthless cost-cutter — employing fiendishly clever anti-union gambits elsewhere, though MediaNews inked a surprisingly benign four-year labor deal with the PiPress union last fall. At the time, St. Paul labor types speculated that Singleton didn’t want turmoil at one of his biggest papers as he faced near-term cash-flow problems, but those problems have apparently worsened. Ultimately, having a contract doesn’t prevent layoffs or buyouts. [UPDATE: Newspaper Guild Executive Officer Mike Bucsko notes that the contract does prohibit layoffs through the end of this year. Check out this story’s comments for more.]

Singleton could also sell the PiPress — or any of his holdings, really. It’s an especially lousy time to do that, amid slumping ad sales and a credit crunch, though the analyst notes the Chicago Sun-Times is currently on the block.

The specter of a JOA?
Then there’s the holy grail of local newsie speculation: the “joint operating agreement.”

A JOA would combine Strib and PiPress business operations while keeping both newsrooms open. Singleton has such deals in Denver, Detroit, Salt Lake City, Charleston, W.Va., and York, Pa. JOAs allow newspapers to cut costs and potentially raise advertising rates (though media-watchers debate how much pricing power newspapers still wield in the Internet Age). The anti-trust exemption’s price: One paper must be “failing,” which the Justice Department and the courts must decide.

We don’t know if the PiPress is profitable; MediaNews doesn’t break out individual papers’ performance, and calls and emails to the Fortress of Solitude in Denver were not returned. Our analyst archly notes that a Minneapolis-St. Paul JOA might be the first ever between two failing papers, speculating that the Strib’s debt overload might be as bad as MediaNews’.

As a stand-alone paper, the Strib has kept its borrowing smaller and below the public reporting threshold. Publisher Chris Harte has said the Strib remains profitable, though trends seem to be taking cash flow below debt service, and eventually could trigger fed-sanctioned “failure.” If I were to make a nice long-shot bet on who will eventually own a single Twin Cities newspaper, I’d pick Singleton’s banker, Hearst.

As a company, MediaNews made $17.4 million in the last quarter of 2007, up 34 percent from a year earlier. However, the profit would’ve been just $1.1 million, had it not been for selling three properties … and receiving a nice little $3.8 million settlement from the Star Tribune to end the Par Ridder imbroglio. Not many gifts like that fall into your lap, and as the S&P report indicates, MediaNews’s day-to-day situation has only worsened.

Standard & Poor’s release
Here’s the Standard & Poor’s release explaining the downgrade to “B,” which came five days before the Tuesday downgrade to B-minus. The rating is explained after the release:

“NEW YORK (Standard & Poor’s) Feb. 28, 2008 — Standard & Poor’s Ratings Services today placed its ratings for MediaNews Group Inc., including the ‘B’ corporate credit rating, on CreditWatch with negative implications.

“The CreditWatch listing reflects our ongoing concerns regarding operating trends in the newspaper sector, which we believe will continue to drive meaningful EBITDA declines for newspaper companies in 2008,” said Standard & Poor’s credit analyst Emile Courtney.

In the case of MediaNews, we are concerned that lower EBITDA may lead to a violation of the leverage covenant in its bank agreement over the near term.

Total leverage as measured per the calculation required in the company’s bank facility was 6.53x at December 2007; this compares with the company’s 6.75x total leverage covenant at December 2007, which steps down to 6.5x on June 30, 2008, and to 6.25x on Sept. 30, 2008. There is also limited cushion in the company’s 4.25x senior leverage and 1.25x fixed-charge coverage covenants. As a result, MediaNews could tolerate only a limited amount of deterioration in its cash flow generation over the next few quarters.

We had previously stated that we believe the company has a number of good relationships with, and a long track record of, significant asset transactions with partners of solid credit quality. We expect that one possible solution — should MediaNews encounter a covenant violation over the near term — would be to negotiate for a liquidity injection of some kind from a partner. Over the near term, we plan to assess expectations for cash flow generation, and review with MediaNews the possibility for a transaction that may enhance the cushion under its bank covenants.”

An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB,’ but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.