This is not a huge surprise, considering the credit crunch and the lousy economy and the pathetic state of the newspaper business. You might recall that the $12.7 billion deal to take Tribune private was made possible by taking on enormous amounts of debt. And now the bonds that form the basis of that debt are trading at well below their face value. Exactly how much below is hard to say because the price of corporate bonds, unlike stocks, are subject to wide swings and can be hard to track. Point is the numbers are low - so low that when you tack on the cost of insurance and fees, it'll take one whopper of an interest rate to get anyone interested. Earlier this month, Standard & Poor's put Tribune Co.'s already-low ratings on CreditWatch for possible downgrade. "The CreditWatch placement reflects our expectation that the rate of decline in advertising revenue at Tribune's newspaper publications may not improve appreciably and may worsen over the intermediate term," said S&P analyst Emile Courtney. In fairness to Tribune, parent of the LAT, lots of corporate borrowers are in the same fix. From Business Week:
Until recently, private equity players could bank on quick profits. Often buyout barons paid themselves a big dividend by issuing new debt just months after taking a company private. Today the debt markets are signaling that firms may have significantly overpaid for deals. That means they will have a hard time refinancing or selling those companies for a profit anytime soon, if ever. As a result, some of the megabillion-dollar buyout funds they started in the past several years--the ones stuck holding these companies--could turn out to be duds for the pension funds, endowments, and high-net-worth individuals that invested in them. "Many buyout deals look like walking zombies," says Michael J. McGonigle, a high-yield bond fund manager at T. Rowe Price.
All this suggests that at some point - most likely sooner rather than later - Tribune honcho Sam Zell will be in major asset-selling mode (and we're not just talking about the already-announced Chicago Cubs sale). Expect a bunch more real estate deals, even though this is not the best market for sellers. As for newsroom cost-cutting - well, it only gets you so far, and besides, many of the Tribune papers are just about hitting bone. There are other options. "He will negotiate a forbearance with bondholders," Dick Israel, of Beverly Hills-based Dick Israel & Associates, told Benjamin Mark Cole in The Slatin Report. "Believe me, this guy is not going to lose the Tribune." One other possibility is to work out a deal in which creditors get some equity in Tribune, though if you find any sucker… er, investor willing to do that I have some lovely marshland in Louisiana you might want to take a look at.