Tribune execs talk to lenders

Sam Zell guides fiscal conference call

Tribune Co. execs were pressed by bankers about the company’s debt ratio and overall liquidity in a conference call Thursday with lenders to discuss the company’s 2007 financials.

A subdued Sam Zell presided over the call without using any of the colorful or salty language that has raised eyebrows during some of his meetings in the past few months with employees at Tribune’s TV stations, newspapers and other business units.

Most of the hourlong discussion focused on parsing nitty-gritty financial data. Tribune execs said the long-planned sale of the Chicago Cubs was moving along. The due diligence books detailing the team’s finances are expected to be sent out to prospective buyers within the next 2½ weeks.

Tribune execs also hinted at big changes to come for the company’s WGN Superstation cabler. Randy Michaels, Tribune’s CEO of broadcasting and interactive, said the channel would be relaunched in May; there’s been speculation that the company will drop the “WGN” tag in a branding effort aimed it making it more of a national service and less rooted in its TV station sibling WGN Chicago.

Zell did not offer any specifics when asked about the rumored plans to sell Gotham’s Newsday to help the company slice into its heavy debt load. Suitors for the paper include News Corp., which has eyed Newsday as a complement to the Wall Street Journal and New York Post, and Cablevision.

“We have been approached by a number of parties who have keen interest in acquiring Newsday,” Zell said. “We have reached no conclusions with anybody at this juncture. We’re discussing whether that does or does not make sense for the Tribune Co. going forward.”

In his closing remarks, Zell sought to quiet the persistent rumors that Tribune may pursue more asset sales if the company’s bottom line continues to erode, and that Zell had become a bit disenchanted with the newspaper biz in his short tenure as Tribune’s chairman and CEO.

“Whatever thoughts we had about the quality of the assets and the opportunity in these assets has only been reinforced,” Zell said. “Our local brands give us significant advantage in becoming the (top) content provider across all channels of delivery.”

Tribune chief financial officer Chandler Bigelow was pressed about the company’s $12 billion debt load, which includes about $1 billion in loans and notes due by year’s end, and whether declining revenues threatened to put the company in breach of its covenant with its lenders.

Michaels and Bigelow said the company’s debt ratio was currently around eight times cash flow. It’s understood that Tribune’s debt covenants with banks allow it to go no higher than the nine-times-cash-flow threshold. Michaels and Bigelow said they were confident the company would comply with its debt covenants this year, even after one skeptical banker opined that the financials as detailed on the call seemed to be closing in on the nine-times-cash-flow mark.

Zell and Michaels emphasized that their focus during the past few months has been on implementing “change in the culture” of the company and reinvigorating sales teams at its nine daily newspapers, where the year-over-year revenue declines have been sharp. Tribune, which was taken private in December through a complex employee-ownership transaction led by real estate mogul Zell, previously disclosed its full-year results last month.

“The revenue trends were significantly worse than we expected,” Zell said, saying that the company was expecting double-digit declines in print advertising in the current quarter.

Zell and Michaels cited the overall weakness in the economy, particularly in the real estate and retail sectors that are heavy buyers of print advertising. Publishing revenues for last year were down 9% from 2006 to $3.66 billion. Operating cash flow for the publishing unit sank 27% to $674 million; in the fourth quarter alone, publishing cash flow plunged 35% to $177 million.

Advertising revenue in the publishing unit dropped 9% to $2.9 billion. Classified advertising, which amounts to one-third of advertising revenues, dropped 18% and accounted for three-quarters of the decline in ad revenues, Bigelow reported.

“We continue to see the flight of advertisers to the Internet,” Zell said.

On the bright side, Tribune Broadcasting stations are in solid shape and “pacing well above the industry” for the year so far, Michaels said.

“There’s no question the television industry has started to trend down,” Michaels said. “We have not. We have a lot of upside.”

For 2007, revenues for Tribune’s broadcasting and entertainment division (which includes the Cubs) eased 2% to $1.1 billion; operating cash flow dipped 2% to $430 million, which Michaels attributed to the influx of political advertising in 2006’s results.

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