Bloomberg News

Tribune's S&P Bond Rating Cut to B- as Ad Sales Fall

March 17, 2008

Tribune Co.'s credit rating was lowered one level to B- by Standard & Poor's, which said advertising sales at the company's newspapers may decline 10 percent this year.

An expected drop in ad sales and earnings increases the risk that the Chicago-based publisher (TRB:US) may violate covenants in its bank agreements in the first half of next year, S&P said today in a statement. The new rating is six levels below investment grade.

Tribune went private in December, in an $8.2 billion transaction led by billionaire Sam Zell, who became chairman. Ad sales at Tribune newspapers have fallen as much as 18 percent this year, Zell said during a visit to the Baltimore Sun last week. The executive said he had expected a drop of 2 percent to 3 percent.

``Even Zell is admitting things are worse than he thought, but a lot of us have expected even worse,'' said Dave Novosel, an analyst at Gimme Credit Publications Inc. in Chicago who recommends selling Tribune bonds. ``He's talked about the need to change, but nothing really has changed yet.''

The new rating means Tribune bonds are more vulnerable to non-payment than higher-rated debt, although the company still has the ability to make its payments, S&P said. A recession would ``likely impair'' Tribune's ability to do so, according to S&P.

`Falling Faster'

``It really is just about a deterioration of the advertising environment for newspapers,'' S&P analyst Emile Courtney said in an interview. The drop reflects both the weakening economy and the long-term loss of print advertising to the Internet. ``Notwithstanding cost cutting and the growth of newspaper Web sites, revenue is falling faster,'' he added.

Profit before interest, taxes, depreciation and amortization at Tribune may fall 15 percent this year, S&P said.

Newspaper advertising brought in 60 percent of Tribune's 2007 revenue, New York-based S&P said. The company's other newspapers include the Los Angeles Times, the Chicago Tribune, and Newsday.

If Tribune goes bankrupt, banks that financed Zell's buyout would probably recover 70 percent to 90 percent of the money they loaned, Courtney said. That's down from an earlier estimate of 90 percent to 100 percent.

To contact the reporter on this story: Tim Mullaney in New York at Tmullaney1@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.


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