S&P Cuts Tribune Credit Ratings

Rating Agency Says It May Slash Them Again Upon Completion of LBO

By Jon Hemingway -- Broadcasting & Cable, 8/20/2007 3:33:00 PM

Corporate credit-rating agency Standard & Poor’s cut Tribune’s corporate credit rating one notch to B+ from BB-.

The agency placed the rating on watch with negative implications and said it would cut the rating another notch to B and revise its outlook on the company to “negative” from “stable” upon completion of the $14.5 billion (including assumption of $5.7 billion in debt) leveraged buyout of the company by Sam Zell.

S&P said the downgrade and revision was a result of deterioration in expected operating performance and cash-flow generation compared with its previous expectations, noting expected declines in newspaper advertising and circulation revenue in 2008, partially offset by some improvement in its broadcasting unit. The expected B rating is also contingent on completion of asset sales and other transactions and the reduction of a $1.4 billion outstanding loan.

Real estate mogul Sam Zell agreed to take Tribune private in March and began the first leg of a complicated debt financing in May. The initial steps of the transaction included a tender for $4.3 billion of common stock and the refinancing of $2.8 billion in debt, an investment of $250 million by Zell and the purchase by a newly created employee stock ownership plan of $250 million of newly issued Tribune stock. In the transaction, the company’s 25% stake in Comcast SportsNet Chicago will be sold, as will Major League Baseball’s Chicago Cubs.

At the close of the deal, Zell will become chairman of Tribune’s board. The ESOP will hold all of Tribune’s outstanding common stock, and Zell will hold a subordinated note and a warrant entitling him to acquire 40% of Tribune’s common stock, at an aggregate exercise price initially of $500 million.

A special shareholder vote is scheduled for Tuesday to approve the merger.