It seems as if the Chicago Tribune paper will continue, albeit with some changes. I hope the dozen or so of my favorite Tribune writers1 don’t get fired.
It seems it has something called a “Delayed Draw Facility” that becomes part of its “Tranche B” credit facility as it draws upon funds. In October, Tribune refinanced an additional $168 million in these Tranche B medium-term bonds, money it said it intended to use to pay the $70 million in medium-term notes coming due Monday.
But Tribune might have seen a somewhat chilling vision of the future when, also in October as credit markets locked up, it sent notice to lenders that it intended to draw $250 million in principal from its revolving credit facility. Fine, but there was just $237 million in it, according to information in the SEC filing.
“The shortfall of approximately $13 million is a result of the fact that Lehman Brothers Commercial Bank, which provides a commitment in the amount of $40 million under the company’s $750 million revolving credit facility, declined to participate in the company’s $250 million funding request,” Tribune said. Lehman Brothers, of course, was one of the first casualties of last fall’s financial meltdown, and its commercial bank is in Chapter 11.
Sam Zell and Co. may also be figuring it makes no sense to pay that $70 million now since, by all reports, it appears Tribune will be in technical default of its loan covenants when the debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio is calculated at the end of this fourth quarter.
The loan agreement sets an outer limit of 9 times EBITDA to debt, which is pretty loose. (Consider that GateHouse Media Inc., sometimes considered a poster boy for the newspaper industry’s high debt, says its ratio is about 6 times.) Yet it appears that Tribune will be unable to report it is within the covenants.
So Monday’s $70 million payment is like the credit card bill appearing in the mail. You’re $5,000 in the hole, say. The minimum payment is just $30. But it makes you think, where are we going here? That’s no doubt what Sam Zell & Co. are asking themselves this morning in their Michigan Avenue tower.
The court filing [24 page PDF] if you are interested…
Update: Zell was worse than we thought. Zell really was just looking for a way to plunder the ESOP.
[Sam Zell ] put up $315 million of his own money and paid the balance of the purchase price, $8.2 billion, with the employee stock ownership plan – a move in which Tribune employees had no say whatever. But that actually overstates the amount of Zell’s investment. Of the $315 million he sunk into the company, it turns out that $225 million was simply a promissory note. Due to the vagaries of bankruptcy law, writes business analyst Mark Lacter on laobserved.com, that means that Zell has better protection for his stake than all his employees. Trib’s ESOP holds 100 percent of the company common equity – and it’s the holders of common stock who usually take a bath, or get wiped out altogether, in the debt restructuring that goes on under Chapter 11.
Even when measured against today’s sub-prime standards for CEO performance, Zell is in a class by himself. The CEOs of the Big Three auto companies may have paid a good deal less attention to the quality of their cars than they should have, but Zell repeatedly and profanely expressed his disdain for quality journalism. The company’s leading papers, the Chicago Tribune and the Los Angeles Times – the latter one of the four great American newspapers – carried too much national and international news, he decreed. Hundreds of excellent reporters and editors were unceremoniously shown the door; the Times lost its Sunday book review and opinion sections; the Washington bureaus of the papers were consolidated and cut back at the very moment when readers are following decisions made in Washington more intently than they have in decades.
and there’s more!
The Tribune internal Q&A website on today’s bankruptcy filing states that “all ongoing severance payments have been discontinued.” So if you’re one of the large number of reporters, editors and other staffers at the L.A. Times, the Chicago Trib or other papers who got sacked and didn’t get your severance in one lump sum, you have a real problem.
In a just world, Sam Zell would go to prison.Footnotes:
- those writers who have either a consistent, interesting voice, or cover a beat that I’m interested in. I don’t have a real list, but seems like it is less than 20 journalists. [↩]