By Armando Duke

(AXcess News) Houston - Shares of community newspaper publisher, Gatehouse Media, Inc. (NYSE: GHS), plunged Monday following an across the board ratings cut by Moody's who cited doubts about its ability to service debt.

Gatehouse Media shares lost over 21% of their already low value Monday, dropping to a new 52-week low of $0.66 cents that put the New York-listed community newspaper publisher on a path towards delisting from the Exchange.  But somehow shares managed to rally in the aftermarket, rising 24 cents, or 36.3%, to trade at 90 cents, six cents over the day's high.

The dismal news coming out of Moody's Investor Service really came as no surprise, but in reading into the rating agency's comments on Gatehouse Media's debt, the analyst covering the Company had to bite his lip to keep him from commenting about the dividend Gatehouse paid out in the last quarter.  At the time, Wachovia Capital Markets analyst John Janedis cut his rating on Gatehouse to "Market Perform" from "Outperform".  Janedis issued his rating cut appropriately on Fridy the 13th, perhaps unknowingly signaling an end to the Company.

Moody's questioned management's thinking in noting that Gatehouse Media was relying "upon proposed asset sales to provide financial flexibility."  The rating agency pointed out that the newspaper publisher had but $25 million in its pocket and all but $11 million of that was the remaining balance on a revolver line of credit that Moody's says is doubtful its lender would permit Gatehouse to use.

"At the end of March 2008, GateHouse's credit agreement-defined results provided the company with a modest 3% cushion within its total leverage financial ratio tests," the Rating agency noted. "Moody's considers it highly questionable whether GateHouse will be able to comply with this covenant test over the near term without the benefit of proceeds from asset sales or another equity cure from its largest shareholder."

While Gatehouse had gone on an acquisition binge when it bought nine newspapers in Ohio and Illinois from Copley Press, Inc., what it didn't buy was the Copley News Service, a 53-year-old wire service that distributes news, political cartoons and opinion columns.  Instead, Gatehouse looked to set up its own newswire in Illinois, whose focus over the last year has been Gatehouse's community websites.  That division, headed in New York by a newspaper photographer with some experience in managing websites (aka 'Sailor' Bill), has done little to develop news syndication clients - both online and in print.  Why Gatehouse didn't buy an already established newswire for that purpose raises questions over management's capabilities that Moody's was more than polite in citing.  It ranks in testimony of Gatehouse Media's inability to compete - both online and in print.

Perhaps Motely Fool put it best in late May when it listed Gatehouse Media as a "Deathbed Stock".

Monday's rating cut could be Gatehouse Media's funeral march.