Analysts: Sam Zell’s Tribune Company at Risk for Credit Default

According to Richard Pérez-Peña, people who have been awed and amused by Sam Zell’s dirty mouth have been “twittering” and “tut-tutting” about more serious matters lately. In today’s Times, he writes that Mr. Zell is in danger of falling into credit default.

The reasons are several: ad revenue, which was supposed to be in decline anyway, has declined even more than we expected, and declined even further at Tribune papers than elsewhere; the company’s debt-service bill is more than $1 billion, and there are more payments on the way after that; the company had an income of $1.2 billion last year, but this year is supposed to be even worse for newspapers and Tribune needs to have earnings of at least $1.1 billion “or risk being declared in default,” Mr. Perez-Pena writes.

This is why Mr. Zell might have to sell Newsday, a paper that actually had a cash flow of $88 million, as the Observer reported. Even though it’s a paper that can actually help the company’s balance sheet, Mr. Zell needs the $500-million-plus in cash more desperately.

Mr. Zell didn’t talk for the story, but there are lots of media analysts who game out the gloom-and-doom scenario for his company.

“There’s very little margin of safety,” said Mike Simonton, senior director at Fitch Ratings. “The company needs to execute asset sales and cost cuts in order to make its debt service payments and offset the significant revenue declines.” …

“This thing looked shaky from the start,” said Ken Doctor, lead analyst with Outsell. “It looked worse by the time the deal closed in December, and it’s gotten worse since then.”

Analysts: Sam Zell’s Tribune Company at Risk for Credit Default