Daily Mail owner at risk of 'junk' debt status in take-private deal

A clock face is seen outside of the London offices of the Daily Mail newspaper in London

Creditors to the publisher of the Daily Mail have been warned that its debts risk being downgraded to junk status as a consequence of a complex bid by Lord Rothermere to take it private.

The prospective sale by Daily Mail and General Trust (DMGT) of US-headquartered RMS, its insurance risk division, will weaken cash flows and profit margins, analysts from ratings agency Fitch said.

Offloading RMS is the first in a chain of moves disclosed last week that would conclude with the sale of the rump of the business to Jonathan Harmsworth, Fourth Viscount Rothermere, the great-grandson of the Daily Mail’s founder.

Prior to the possible sale to the Rothermere family, shares from DMGT’s 16pc stake in second-hand car website Cazoo would be allocated to investors. Cazoo is expected to float for $7bn on the New York Stock Exchange later this year.

RMS specialises in risk modelling technology that helps insurance firms calculate their exposure to catastrophes such as hurricanes and floods. It generates about 29pc of DMGT’s operating profit.

Analysts at Fitch said: “Following a disposal, DMGT would comprise consumer media, parts of which are exposed to weak print advertising and circulation trends; an events business that has been materially affected by the pandemic.”

Although it has been listed on the stock exchange since 1932, DMGT has never used the capital markets to raise cash. The Rothermere family still owns 30pc of the business.

However, the FTSE 250 company has previously tapped the debt markets. Currently its debts are rated BBB- by Fitch, the lowest notch required to sustain “investment grade” status. A downgrade would push them into the “junk” bracket.

Analysts said: “Fitch has viewed RMS as a key part of the [business-to-business] portfolio and a key support for the rating. A disposal would underline the management's strategy of realising shareholder value through disposals, and confirm that no individual business is strategically sacrosanct.

“We consider it less likely that the portfolio mix will continue to support an investment-grade rating.”

DMGT declined to comment.