With a heavy debt load from going private and the continuing impact of a soft US economy, Tribune Company is now facing a possible downgrading of its debt ratings by Moody’s Investors Service. Tribune has some 14 billion bucks worth of debt instruments that the ratings agency may downgrade.
“Moody’s had anticipated Tribune’s revenue would decline over the next several years, but the pace of decline thus far in 2008 is larger than previously expected,” the rating agency said. Moody’s noted last week’s conference call, in which the company indicated that newspaper ad sales were continuing to decline and that there had been limited progress thus far in selling assets to cut debt.
“Moody’s will review Tribune’s plans to mitigate the effects of the difficult print advertising environment with new revenue opportunities and cost reductions. In addition, Moody’s will evaluate Tribune’s plans to manage the liquidity and financial risks associated with the company’s highly leveraged capital structure, approximately $1.8 billion of debt maturities in 2008 and 2009 and the financial covenants in its credit facilities. Moody’s will consider the effect that current credit and advertising market conditions have on the valuation and timing of contemplated asset sales, and the resulting effect that completing dispositions will have on the company’s liquidity and leverage profile. LGD assessments and point estimates on Tribune’s debt instruments are also subject to change,” the ratings agency said.
Here is a list of ratings on review by Moody’s for possible downgrade:
Issuer: Tribune Company
….Corporate Family Rating, Placed on Review for Possible Downgrade, currently B3
….Probability of Default Rating, Placed on Review for Possible Downgrade, currently B3
….Guaranteed Senior Secured Bank Credit Facility, Placed on Review for Possible Downgrade, currently B2 (LGD3-35%)
….Guaranteed Senior Unsecured Bank Credit Facility ($1.6 billion bridge credit facility), Placed on Review for Possible Downgrade, currently Caa2 (LGD5-81%)
….Senior Secured Regular Bond/Debenture (pre LBO bonds and MTNs), Placed on Review for Possible Downgrade, currently Caa2 (LGD5-88%)
….Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Caa2
….Subordinate Conv./Exch. Bond/Debenture (PHONES), Placed on Review for Possible Downgrade, currently Caa2 (LGD6-94%)
RBR/TVBR observation: Don’t bet against Sam Zell and Randy Michaels. If anyone can make this work, they can. But that staggering debt load is going to be very difficult to manage in a sinking economy.