In the absence of any more asset sales, Standard & Poor's analyst Emile Courtney tells Bloomberg that the LAT parent could face default by the end of the year. The problem continues to be generating enough cash to meet the terms of the loans that were arranged late last year. On June 6, Gimme Credit LLC called the debt situation "deteriorating" and recommended selling Tribune bonds. Those warnings might be a bit dire since Tribune still has its stake in the Food Network that it can sell off (that would be in addition to the $630 million from the planned sale of Newsday). Of course, the more you sell the fewer properties you have that can generate revenue. That S&P is raising the warning flag can't be instilling much confidence - nor can the bumble-headed memos being cranked out by the company's "innovation" officer (his latest effort is borderline moronic). It's not just Tribune - S&P's Courtney lists Dean Singleton's MediaNews Group as being on the edge.
Newspapers are selling today for about six times earnings, said Sammy Papert, chairman of Belden Associates, a newspaper consulting firm in Dallas. This is below the 11.5 times earnings that MediaNews and Hearst Corp. paid in a $1 billion deal for the Mercury News and three other newspapers in 2006. Since then, Denver-based MediaNews, the second-largest closely held U.S. newspaper company by circulation, had its credit rating slashed four levels by S&P to B-, or six levels above default. Debt rated B is likely to become impaired in adverse business, financial or economic conditions, S&P notes. Singleton expects the company, with average weekday circulation of 2.6 million in fiscal 2007, to remain in compliance with debt covenants, the chief executive officer said in a June 12 telephone interview.
Even with the [Newsday] sale, Tribune may fall out of compliance with its debt requirements by the end of this year or early next, S&P's Courtney said. Chicago-based Tribune, the second-largest U.S. newspaper company, had debt of 8.1 times its cash flow at the end of the first quarter and must keep the ratio below 9 times for the rest of the year, according to CreditSights Inc., a bond research firm. Tribune's $450 million of 4.875 percent notes due in 2010 traded last week at 69.5 cents on the dollar to yield 23.7 percent, or 20.7 percentage points more than similar-maturity Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.