Tribune ratings tied to newspaper debt shift: Corporate finance

Tribune Co. risks having its credit rating cut unless it shifts about $400 million of borrowings to the Chicago Tribune, Los Angeles Times and other newspapers it's divesting, a move that would contrast with debt-free print spinoffs by News Corp. and Belo Corp.

"If they don't allocate some of the debt with the spinoff, leverage may exceed five times, and that would put pressure on the rating for a downgrade," Carl Salas, a vice president and senior credit officer at Moody's Investors Service in New York, said in a telephone interview.

Tribune, which is focusing on the broadcasting business after emerging from Chapter 11 bankruptcy protection at the end of 2012, is buying Oak Hill Capital Partner's Local TV Holdings LLC for $2.73 billion, according to a July 1 statement. That will leave the Chicago-based company with about $3.8 billion of debt, more than its cash flow can support at its current Ba3 Moody's rating, three levels below investment grade.

As the U.S. newspaper business contracts, other companies divesting their print businesses have been choosing to let them begin their independence with clean balance sheets. Discarding the less-profitable newspapers will reduce Tribune's earnings before interest, taxes, depreciation and amortization by more than $200 million a year.

"With the spinoff of the newspapers they'll lose Ebitda and revenue," Salas said.

ZELL BUYOUT

Tribune, driven into bankruptcy after billionaire Sam Zell's $8.3 billion leveraged buyout in 2007, was leveraged at 3 times on Dec. 31, when it exited Chapter 11, according to Moody's. The ratings firm's grade on the company is equivalent to its BB- at Standard & Poor's.

Gary Weitman, senior vice president, corporate relations for Tribune, declined to elaborate on the separation plans beyond what was contained in a July 10 statement, saying details would emerge within 12 months.

"The two companies resulting from this transaction would each have revenues in excess of $1 billion and significant operating cash flow," Peter Liguori, president and chief executive officer of Tribune, said in the statement.

Tribune has received financing commitments for as much as $4.1 billion from JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Deutsche Bank AG and Cr?dit Suisse Group AG, including a new $300 million revolving credit line and permission to refinance existing debt, the company said in the July 1 statement. It will pay for Local TV, which owns 19 television stations, with a combination of debt financing and cash.

TERM LOAN

The broadcaster has a $1.1 billion term loan due in December 2019 that it obtained when exiting bankruptcy. The loan pays interest at the higher of 4 per cent or 3 percentage points more than the London interbank offered rate, according to data compiled by Bloomberg. It traded at 100.75 cents on the dollar on July 19, down from a high of 101.5 cents on May 22, prices compiled by Bloomberg show.

Libor, the rate at which banks say they can borrow from each other, was set at 26 basis points on July 19. A basis point is 0.01 percentage point.

News Corp. split into two entities last month, turning the largest U.S. newspaper publisher into a separately traded stock from 21st Century Fox, the broadcast unit. The spinoff occurred with no debt and $1.3 billion of cash at the print company.

7-YEAR DECLINE

"This is a very conservative balance sheet," Paul Sweeney, a media analyst at Bloomberg Industries wrote in an e- mail. "I happen to agree with this strategy as the publishing business (particularly newspapers) faces a very difficult future."

A seven-year decline in print advertising and looming costs from newspaper pensions have led to an industrywide separation of the two segments.

Belo spun off the Dallas Morning News, the Providence Journal in Rhode Island and the Press-Enterprise in Riverside California in February 2008 as A.H. Belo Corp. The publisher was also spun off without debt, Robert Decherd, chairman of both companies, said on an October 2007 conference call to discuss the separation with analysts and investors.

While revenue at Tribune's newspapers is shrinking, the business is profitable and boasts some of the highest-profile publications in the U.S. In addition to the papers in Los Angeles and Chicago, holdings include the Sun Sentinel and Orlando Sentinel in Florida, the Hartford Courant in Connecticut and Daily Press in Hampton Roads, Virginia.

'READERSHIP DECLINES'

Tribune's publishing segment posted $46.4 million in operating profit in the first quarter. Revenue declined to $465.9 million, down 3.2 per cent from the previous year.

"We believe that profitability at the publishing segment will continue to decline as additional cost cuts may be insufficient to offset long-term pressures of readership declines and advertising moving online," S&P analysts led by Jeanne Shoesmith wrote in a July 10 report.

Debt to cash flow at 1 times to 2 times for the spun off newspaper company would be "OK," according to Bloomberg's Sweeney. "I would be concerned if the spinco had more than three times leverage," he said.

Tribune's 2012 Ebitda for its 23-station broadcasting unit, which includes WGN-TV in Chicago and WPIX-TV in New York was $414 million while the comparable number for the Local TV stations was about $290 million. The merged company's cash flow will be at least $700 million, according to Sweeney.

"Management is very focused on growing the company as a broadcaster and I believe they'll do it within the Ba3 rating," Salas said. "I don't believe management will take on needless risk such as a dividend or overlevering the company."

Source: http://feeds.canada.com/~r/canwest/F6939/~3/5_z1O6HZ67k/story.html

bks new dark knight rises trailer khloe and lamar oklahoma city thunder sunoco titanic ii babe ruth