July 11 (Bloomberg) -- New York Times Co.'s debt rating was cut one level to BBB, the second-lowest investment grade, by Standard & Poor's, which cited falling advertising sales and the broader newspaper industry decline.

The short-term corporate credit and commercial paper ratings for the New York-based publisher were also lowered, to A-3 from A-2, S&P said today in a statement. Total debt should decline to slightly more than $1 billion by year end, S&P said.

``Operating performance for the month of May was lower than anticipated,'' S&P said in the statement. Total advertising revenue fell 8.5 percent to $157.3 million from a year earlier, and newspaper ad sales dropped 9.9 percent.

Publishers including New York Times, owner of the namesake newspaper and Boston Globe, have been hurt by the loss of advertisers to electronic media including the Internet and cable television. The company's 2007 newspaper advertising sales slid 5.5 percent through May from a year earlier, S&P said.

S&P said it ``expects revenue declines to continue over the next couple of years'' and that New York Times ratings may be lowered again ``if trends related to print advertising remain in line with what was reported in the past few months.''

Shares of New York Times fell 26 cents, or 1.1 percent, to $23.93 at 4:01 p.m. in New York Stock Exchange composite trading. They have declined 1.8 percent this year.

Circulation Sales

Catherine Mathis, a spokeswoman for New York Times, didn't immediately respond to a phone call seeking comment.

Circulation revenue for the company rose 1 percent in the first quarter to $222.5 million. Last month, the company said it planned to increase home delivery and newsstand prices for the New York Times. The single-copy weekday price is rising to $1.25 from $1 and the price of the Sunday edition in the New York metropolitan area is going to $4 from $3.50.

Average weekday circulation for the newspaper fell 1.9 percent to 1.12 million for the six-month period through March, according to the Audit Bureau of Circulations.

Goldman Sachs Group Inc. analyst Peter Appert recommended last week that investors sell shares of New York Times because it is ``particularly vulnerable'' to industry changes.

In March, New York Times increased its quarterly dividend 31 percent to 23 cents a share, the biggest jump in at least a decade. S&P began its review after the dividend was raised.

The company reported long-term debt of $721 million and short-term debt of $492.6 million as of April 1. New York Times sold its broadcast division in May for $575 million and plans to reduce debt with the proceeds.

The perceived risk of owning New York Times bonds rose to the highest in seven months. Credit-default swaps based on $10 million of the debt jumped $9,500 to $54,000, according to New York-based Credit Derivatives Research LLC. An increase in the five-year contracts, used to speculate on the company's ability to repay its debt, signals deterioration in credit quality.

Lower credit ratings can result in higher borrowing costs.

To contact the reporter on this story: Don Jeffrey in New York at Djeffrey1@bloomberg.net

Last Updated: July 11, 2007 16:06 EDT