Fitch Ratings, citing the "rapidly deteriorating" conditions in the newspaper industry, lowered its ratings on Tribune Co.'s $13.4 billion in outstanding debt.
Given the accelerating decline in newspaper advertising revenue and cash flow at the Chicago media holding company, Fitch said, and in view of the fact that there is "no evidence" the pressures on the industry will be relenting any time soon, Fitch lowered its issuer default rating from "B-minus" to "CCC."
A "CCC" rating, the rating concern said, indicates that there is a "real possibility" the issuer could default. The low rating also suggests that the issuer's ability to meet financial commitments "is vulnerable to deterioration in business and economic conditions," Fitch said.
Tribune Co. is heavily leveraged as the result of an $8.2 billion leveraged buyout engineered by real estate mogul Sam Zell last December. In the months since then, the newspaper sector's troubles have deepened, and some observers have voiced reservations about the company's ability to stay current with its debt payments in coming years.
Near term, Tribune has raised money be selling off some assets: earlier this year it sold a controlling interest in its Long Island-based Newsday daily, and the company is currently pursuing a sale of its Chicago Cubs major-league baseball team.
Earlier this week, Chairman and CEO Zell told Bloomberg Television in an interview that the company has no liquidity issues and is positioned to handled scheduled debt payments for the next seven years.
"We don't have any real maturities that aren't covered until 2015," he said, reiterating that the company expects to pay off the $593 million remaining principal balance of a $1.5 billion bank loan that comes due in June of 2009.
Fitch lowered its rating on a number of other Tribune debt issues, and retained its "negative" outlook on the debt.
Tribune's second-quarter operating results were weak, Fitch said, as the rapid falloff in advertising that has socked all newspaper publishers continues to take a toll on revenues. The rating concern said it remains cautious about the newspaper industry's ability to capture and monetize the growing torrent of advertising dollars that are migrating toward the Internet.
Although Tribune appears likely to make the required June 2009 payment that is looming, Fitch said, "further asset monetization may be necessary."
I the long run, Fitch said, there is reason to be "concerned about the company's ability to generate cash to meet its interest payments, principal amortization and maturities under its debt obligations.