Tribune gets a ‘payday loan’
While it is commonplace and legitimate for companies in many industries to borrow against the value of invoices that customers have yet to pay, most media companies never needed to do this, because their operations historically generated more than enough cash to remain solvent in the few weeks between running an ad and getting a check for it.
But the Tribune Co. reported in a brief press release issued on the eve of the Fourth of July weekend that it has established a line of credit enabling it to borrow up to $300 million against the future value of the advertising revenues that it books. The company already has taken down $225 million of the available funds.
This move, which is roughly akin to a strapped wage-earner borrowing against his next paycheck in what often is called a "payday loan," is but one of several initiatives that Tribune has undertaken to ensure it has sufficient cash to fund the $962 million in interest payments it is obligated to pay this year.
Other steps include selling Newsday, reducing its newspaper staffs by double-digit percentages, dropping 500 pages of newshole a week across its portfolio of publications and cracking down on the consumption of office supplies.
Tribune’s decision to borrow against its receivables struck several media-finance experts as not only unusual but also slightly self-defeating. Instead of waiting for its money for the 60 days it normally takes most advertisers to pay their bills, Tribune will be giving up some of the proceeds in interest payments to Barclays Bank, ensuring that the publisher will collect something less than 100 cents on the dollar.
Tribune did not disclose the terms of the loan, so it is not possible to tell how many pennies it will have to fork over to the bank. If the company paid 7% interest on $225 million for a full year, the bill of nearly $15.8 million would just about pay the salaries of the 150 journalists about to be axed at the Los Angeles Times. Interest of 3.5% for a full year would be nearly $7.9 million, or just about enough to fund the annual compensation of the 80 journalists about to be cut at the Chicago Tribune.
A spot check of newspaper companies determined that no major publisher has found it necessary or economically advantageous to finance its receivables in the same way. The concept is new to Tribune, too.
“No, we haven't done this before,” said Tribune spokesman Gary Weitman in an email responding to my inquiry. “As to why we're doing it now, we simply feel that strategically this is a good move to make. I think it is also worth noting that in the face of what seems to constant doom and gloom (from you and others) about the future of newspapers and newspaper advertising, someone out there thinks the future is strong enough to provide financing backed by advertising receivables.”