Moody’s Investors Service has downgraded the bond (debt) ratings of media firm Johnston Press, owner of The Scotsman, the i newspaper and the Yorkshire Post, deeper into “junk” territory, expressing concerns about the company’s liquidity.

Moody’s said: “Given the structural challenges of the print industry as well as the uncertainty over advertising demand in H2 2016, we believe that the company liquidity profile is weak with meagre to neutral adjusted free cash flow generation expected in 2016 and heightened risk of a breach under its RCF (revolving credit facility) covenant as this continues to tighten.”

Moody’s downgraded Johnston Press from Caa1 to Caa2, its third lowest ranking.

Moody’s downgraded the Probability of Default Rating (PDR) on Johnston to Caa2-PD from Caa1-PD and the rating on the company’s £225 million senior secured notes issued by subsidiary Johnston Press Bond Plc to Caa2 from Caa1.

The outlook on the ratings has been changed to negative from stable.

“Today’s rating actions reflect the worse than expected weakening in Johnston Press’ performance as detailed in the company’s H1 2016 interim results which showed revenue declining -9.7% and EBITDA -12.5% on the back of continued structural decline in print circulation as well as a drop in print advertising revenue,” said Moody’s.

While Moody’s said it noted the good performance of Johnston’s newly acquired “i” newspaper, that was outweighed by the slowdown experienced by the rest of the company.

Johnston Press publishes 13 paid-for daily newspapers, 154 paid-for weeklies, 37 free newspapers and a number of lifestyle magazines.

The company has announced plans to dispose of some “non-core assets” and use the proceeds to repay debt.

“While the successful implementation of these sales would be credit enhancing, there is execution risk on concluding these sales and any positive impact on the quantum of debt would be analysed in conjunction with any reduction in EBITDA and free cash flow generation,” said Moody’s.

“Moody’s also cautions that, as per its standard definition of default, purchases of debt at a discount to par might be seen by the rating agency as amounting to a distressed exchange.”

Moody’s said it viewed Johnston Press’ liquidity profile as weak, despite the company historically generating positive free cash flow.

Moody’s believes that access to the company’s revolving credit facility “could be jeopardised by a potential covenant breach resulting from the compound effect of the weakening performance and the scheduled tightening of the covenant level.”

“Based on H1 2016 results, Moody’s estimates that the company’s headroom under its RCF covenant is now well below 10%,” said the ratings firm.