Tribune Debt Gets Downgrade

Newspaper Woes Deep, Seemingly Unending

Corporate credit evaluation agency Fitch Ratings lowered the status of $13.4 billion in Tribune debt to a CCC rating late Friday, which signifies that “default is a real possibility and the capacity to meet financial commitments is vulnerable to deterioration in business and economic conditions.”

In addition, Fitch says the outlook is negative for the Chicago-based newspaper and broadcasting giant. Private equity financier Sam Zell took the Tribune private in late 2007 and is rapidly selling assets to reduce debt, including the company’s Chicago Cubs baseball team and associated property. Tribune operations

went into sharp decline immediately after the takeover


In its rating, Fitch says that biggest issue is the “acceleration of declines in newspaper advertising revenue and cash flow at Tribune and no evidence from any participants in the industry regarding the prospects for current pressure relenting…Over the longer term Fitch continues to anticipate that the company will be challenged to generate meaningful and consistent revenue growth, and remains cautious regarding newspaper companies' prospects for capturing and monetizing the significant volume of advertising dollars that are migrating toward the internet.”

The outlook for Tribune’s broadcasting division is not dire, but also not rosy. The rating agency says, “While the second half of 2008 should be favorable for the broadcasting division, Fitch expects 2009 to be a weak year for TV broadcasting stations, particularly those affiliated with lower rated networks (e.g. The CW Network).”

The on-going sale of the Cubs baseball operation, which includes 25% stake in Comcast SportsNet Chicago, is drawing keen interest from potential bidders. But Fitch says accomplishing a sale at a good price simply enables Tribune to meet its demanding short-term debt repayment deadline and over the longer term Tribune risks falling in violation of debt covenants.

“While the company could receive an amendment or waiver from the banks if it breaches a covenant, in this credit environment Fitch is uncertain and cautious regarding the terms of such a potential negotiation for such a highly leveraged entity with deteriorating prospects,” Fitch says.

Tribune’s credit capacity took a blow when it

took a non-cash $3.8 billion write-off earlier this month

, reflecting declining values of it asset base.


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