The short-sellers are smelling blood at Gannett, which was No. 16 on the list of their favorite stocks (as of Feb. 25). More than 30 percent of oustanding shares were being shorted.

Shares of the nation’s largest newspaper chain fell below $3 today, meaning the company can be had for $666M. Driving the stock lower was  news that S&P had joined Moody’s in junking Gannett’s debt.

Revenues are plunging and Gannett is being squeezed for the cash it needs to pay the bank. At the end of 2008, Gannett had approximately $3.8 billion in long-term debt. The company had approximately $1.2 billion of additional borrowing capacity to repay debt maturing in 2009 and beyond.

All this debt financed the purchase of newspapers that are worth much less than the company paid for them. In 2008, Gannett took a goodwill charge (writedown of assets) of $8.3 billion (!), almost all of it in its publishing division.

Now I am become debt, the destroyer of newspapers.