Fitch Ratings Downgrades Tribune Co.

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By: E&P Staff

Fitch Ratings downgraded its Issuer Default Rating for Tribune Co. to “BB-” from “BB+” on Monday, reacting to the announcement of a takeover deal that will load the Chicago media giant with more debt.

Fitch had already rated Tribune credit at “junk,” or non-investment grade,” status.

The ratings agency also put a Rating Watch Negative on the approximately $5 billion of outstanding senior unsecured and subordinated debt on Tribune’s balance sheet now.

The $8.2 billion deal with Chicago real estate magnate Sam Zell will be financed in stages by some $11 billion in debt that will be channeled through an employee stock options plan (ESOP) that will not be taxed on interest or principal payments.

“Fitch’s rating action reflects the significant debt burden the announced transaction would place on the company’s balance sheet as its revenue and cash flow have been declining,” the credit agency said. “Fitch believes the proposed plan would be detrimental to bondholders as pro forma consolidated leverage could exceed 9 times.”

If the transaction goes through, Fitch added, the rating would be downgraded further.

“A multiple-notch downgrade upon closing of the transaction is likely as preliminary pro forma credit metrics are reflective of a low ‘B’ IDR,” Fitch said.

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