After reviewing Tribune Company's plans for a two billion bucks stock buyback, Moody's Investors Service has downgraded the company's outstanding debt - five billion in all - to junk status. Moody's says plans to sell off 500 million in assets and cut costs by 200 million aren't sufficient to counteract the increased leverage from the stock buyback. In its ratings actions yesterday, Moody's downgraded Tribune Company's senior unsecured debt rating to from Baa3, the lowest investment grade rating, to Ba1, one notch lower. It also downgraded Tribune's short-term commercial paper rating to Not Prime from Prime-3. Moody's assigned a Ba1 Corporate Family Rating to The Tribune Company, but added that its outlook for the company's ratings going forward is stable.
"The downgrade is prompted by management's stated intention to return capital to shareholders over the intermediate term at a level that will result in an increase in adjusted debt to over 4.0x EBITDA, and over 10.0x FCF (adjusted for Moody's standard adjustments). Moody's believes that achievement of the target capital structure may occur
through the current tender offer process or through subsequent actions. Tribune's plan to divest approximately USD500 million of assets and achieve cost savings of USD200 million does not fully mitigate Moody's concerns raised by the company's increased financial leverage targets. The rating reflects Moody's view of the company's intermediate term financial risk tolerance despite recognition that the Chandler Trusts' 13d filing may force the board to further consider alternate approaches to enhancing shareholder value.
The stable outlook considers Tribune's commitment to reduce debt over the intermediate term, and its ability to improve its operating trends and margins through cost-cutting, and its leading positions in the markets its serves partially mitigates Moody's concerns over intermediate term event and execution risks. Moody's expects Tribune's print and broadcast operations will remain under secular pressures that include cross-media and internet competition and declining circulation.
Tribune Company, headquartered in Chicago, Illinois, is a leading media company with operations in television and radio broadcasting, publishing, education and interactive services.
Downgrades:
Issuer: Times Mirror Company, The
Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 from Baa3
Issuer: Tribune Company
Commercial Paper, Downgraded to NP from P-3
Issuer Rating, Downgraded to Ba1 from Baa3
Senior Unsecured Medium-Term Note Program, Downgraded to Ba1 from Baa3
Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 from Baa3
Senior Unsecured Shelf, Downgraded to (P)Ba1 from (P)Baa3
Subordinated Conv./Exch. Bond/Debenture, Downgraded to Ba2 from Ba1
Subordinated Shelf, Downgraded to (P)Ba2 from (P)Ba1
Assignments:
Issuer: Tribune Company
Corporate Family Rating, Assigned Ba1
Outlook Actions:
Issuer: Times Mirror Company, The
Outlook, Changed To Stable From Rating Under Review
Issuer: Tribune Company
Outlook, Changed To Stable From Rating Under Review"
