Zell vague on debt

Tribune CEO Sam Zell had a chance this afternoon to say that all was fine with servicing the company's huge debt load. But during an interview with CNBC he was practically elliptical. When Maria Bartiromo cited worrisome comments from S&P and Moody’s and asked whether Tribune was in danger of breaking any banking covenants tied to the burdensome financing, he said:

Well, I think that anything is possibly true, and until something happens nothing is true. I think what these guys have given you are their opinions and I certainly can't tell you what the next period holds and whether in fact something like that may or may not happen. Tell me how difficult the economic conditions are going to be, tell me how much longer we're going to see the kind of advertising erosion we've seen and then I think I could give you a better analysis of the newspaper business.

Huh? That answer is not likely to quell rumors at the LAT about the expected newsroom layoffs/buyouts being somehow tied to requirements in those bank covenants. The chatter, none of it confirmed, is that the company’s performance has slipped under the financial threshold that had been guaranteed in getting those bank loans. Here’s boiler plate language from Tribune's annual report:

If our cash flows and capital resources are insufficient to fund our debt service obligations, we will likely face increased pressure to reduce or delay capital expenditures, dispose of assets or operations, further reduce the size of our workforce, seek additional capital or restructure or refinance our indebtedness. These actions could have a material adverse effect on our business, financial condition and results of operations.

Those words are too ambiguous to draw any conclusions, but it would obviously raise concerns. During the CNBC interview, Zell did say that he expected Tribune would sell the Cubs before the end of the year (considered critical to the financing plans). As for the credit situation, he said, "What credit? At the moment there is very, very little credit in the marketplace. Institutions are fulfilling their previous commitments, but certainly nobody is looking to take on increased exposure." Tribune has $12.5 billion of debt and its loans were quoted as low as 37.5 cents on the dollar this week. A Bloomberg piece sizes up the situation:

Banks and investors who are losing money on the record $1.7 trillion of high-yield, high-risk loans made in 2006 and 2007 are charging borrowers an average of 1.64 percentage points more in interest to amend borrowing agreements and avoid default, according to Standard & Poor's. That's the highest since 1997 and almost eight times more than the first half of last year. Lenders, reeling from an almost 20 percent decline in loan prices, are punishing borrowers in jeopardy of breaking their loan agreements as the economy teeters on recession.

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Banks for McClatchy, owner of the Miami Herald, demanded as much as 2.25 percentage points more in annual interest to relax the publisher's lending agreements, the Sacramento, California- based company said in a Sept. 30 regulatory filing. McClatchy was paying an interest margin of 1.25 percentage points at the start of the year. San Francisco-based construction-supplier Building Materials agreed last week to pay an extra 3.5 percentage points on $340 million of loans after its earnings fell below targets, according to a Sept. 30 filing. "We're in a credit crunch and getting those covenants amended will be lot more painful,'' said Andrew Feltus, who oversees $8 billion in high-yield debt at Pioneer Investment Management Co. Inc. in Boston.