If Los Angeles Times owner Tribune Co. doesn't make its looming debt payment or breaks any loan covenants, media analysts say bankers could force the company to sell off assets, including television stations such as KTLA (Channel 5).
By next spring, Tribune will need to come up with at least $600 million in cash or be forced to renegotiate the terms of its $12.5 billion debt.
And that could be nearly impossible given the deepening global credit crisis, as well as a long slide in circulation and ad spending at the Times and other Tribune papers.
"They don't even have to necessarily miss a payment for the creditors to step in and renegotiate the loan agreements. All they have to do is break one of several cash flow covenants to trigger renegotiations," said Ken Doctor, media analyst at Outsell Inc., a Burlingame media consultancy.
Real Estate tycoon Sam Zell, who made a fortune in the real estate business, purchased Tribune in a leveraged buyout for $8.5 billion in April 2007. However, the deal left the company with $12.5 billion in debt.
Since Zell took the helm at Tribune, he has forced massive companywide layoffs topping 2,000 jobs, more than 250 of them at the Times. Zell also has fired four Times publishers since he took over, recently tapping former DirecTV chief executive Eddy Hartenstein to take the post of Publisher.
Hartenstein was reportedly given six months free reign by Zell to operate, but just last week two months into his reign there were reports that 50 to 75 newsroom employees were being offered buyouts. That generated widespread speculation the company is teetering on the financial edge.
According to several analysts, Zell had a very thin financial margin to start and now he's facing a virtual credit freeze amid an advertising downturn that isn't expected to turn around for at least six to nine months, if not longer.
Even if the worst happened and Zell was unable to maintain the minimum cash flows, the banks will likely work with him but could extract a heavy toll by forcing him to sell prized assets, such as L.A's KTLA. Another possible asset that might have to go: Tribune Co.'s 31 percent stake in E.W. Scripps Food Network, a leading cable network.
"It wouldn't be the end of the world for a large and diverse company like Tribune, but it could mean that the bankers could toss in some directives to management if they choose," said Rick Edmonds, media analyst at the Poynter Institute.
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