Wednesday, July 09, 2008

Tribune gets a ‘payday loan’

Sparing few efforts to raise cash to service its daunting $12.6 billion in debt, the Tribune Co. has taken a highly unusual step for a media company: Borrowing against its future ad revenues.

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.”

Thanks, Barclays.

8 Comments:

Blogger DigiDave said...

Wow. Not much I can say but wow.

10:06 PM  
Anonymous Anonymous said...

A 7 percent interest rate is extremely generous for this type of loan, especially given the risk Barclays faces for a company struggling with $12.8 billion in debt. Since there are other creditors who are standing at the front of the line and Tribune's debt has already been downgraded as the economics of newspapers sours, Barclays would be certain to charge a big risk premium for its $300 million. An interesting fact that I didn't know is that Tribune spent $225 million of the loan immediately, indicating a lot of stress. I think 12 percent would not be out of line

5:28 AM  
Anonymous Anonymous said...

...Tribune spokesman Weitman displayed the churlishness of a Mafia don when responding to your inquiry. The press is immune to negative 'letters to the editor', which they shuck off, but still bridles at the alternate internet information system and it's interest in press reporting. They still think they own the " Truth to power " meme.

7:21 AM  
Blogger Trista said...

This comment has been removed by a blog administrator.

3:09 PM  
Anonymous Anonymous said...

I'm just a dumb citizen, and not familiar with the world of high finance, but it strikes me that $12.6 billion in old debt, plus $300 million in new debt equals $12.9 billion in debt. And this after the Tribune received $650 million from Newsday. So where did that Newsday money go? I guess to pay the vig? As I said, I don't know anything about high finance, but to have a concern that is shrinking in size, while its debt is increasing is a recipe for disaster.

7:53 AM  
Blogger brettdl said...

The Tribune spokesman reminds me of Tariq Aziz during the Iraq war. He kept saying Iraq would win the war while the TV audience could hear the approaching American troops.

5:41 AM  
Anonymous Chris said...

I like the "Dumb Citizen" comment. I feel the same way. Yet, this doesn't seem like a very good idea. I know that payday loans can be helpful at times, but this is a really big loan!

9:23 AM  
Anonymous Bell said...

For a company with such a high debt, the risk is also very high. Already there is lot of uncertainity about the company's future. At this point providing loan is a big threat for all.

2:40 AM  

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