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Crain's Chicago Business Weighs the Risks and the Potential Rewards of Tribune's Spending $2.7 Billion to Buy 19 TV Stations Crain's Chicago Business

"The last time Tribune Co. borrowed billions of dollars to finance a big acquisition, it didn't work out very well," writes columnist Joe Cahill in one of TVWeek's sibling publications, the well-respected Crain's Chicago Business.

Cahill continues, "I'm referring, of course, to the ill-fated leveraged buyout real estate mogul Sam Zell orchestrated in 2007. Mr. Zell cashed out existing shareholders and took the media company private in a deal that loaded Tribune with $8 billion in debt. That turned out to be too much for Tribune, which landed in bankruptcy after advertising revenues plummeted during the recession.

"Apparently the experience left Tribune executives with no fear of debt. Barely six months after emerging from bankruptcy, the Chicago-based media company is borrowing about $2.7 billion to buy 19 local television stations from Local TV Holdings LLC. The deal announced July 1 would almost double Tribune's broadcast station count to 42. It also would more than triple the company's debt to about $3.8 billion."

The article notes, "Debt-rating companies are alarmed. Standard & Poor's Ratings Services yesterday put Tribune on credit watch with “negative implications,” because the deal would boost debt to about 4.3 times earnings before interest, taxes, depreciation and amortization, a big jump from 2.3 before the acquisition but still within the range debt markets consider reasonable. Moody's Investors Service put Tribune credit on 'review for downgrade,' citing increased debt levels resulting from the deal."

Bottom line, Cahill writes, "If the stations [Tribune CEO Peter] Liguori is buying give him the cash he needs to produce hits, it's a good deal. But if Tribune can't make that shift, the buyout debt may get awfully heavy."

To read a lot more about the speciific risks and potential rewards of  the Tribune deal as outlined by Cahill, please click on the link in our first paragraph, above, to read the entire original article.