Monday, June 08, 2009

Zell Heading Out?

Potential big news on the Tribune financial front could have huge, positive issues for the Cubs. It seems that in order to alleviate the debt burden of the company, the banks that lend money to the Trib may exchange their debt for equity and Zell may be out:

The central logic behind the debt-for-equity swap is that Tribune Co. can no longer afford the nearly $13 billion in debt that grew out of Zell's $8.2 billion deal to take the company private in 2007. With advertising revenue in decline and the company's cash flow deflated, the company must shrink its obligations to a more sustainable level while giving creditors enough potential value in return that they agree to the cuts without a fight.

Zell stands to lose $80 million in stock warrants and a $250 million a note that represents a loan he made to the company as part of the initial going-private transaction. He may also lose control of the company.

Sources close to both the creditors and the company said it is too early to make such decisions and Tribune management continues to control the process because it currently has the exclusive right to propose whatever reorganization plan it wishes. But Zell's team has indicated that it wants to work toward a consensual plan with the company's creditors, which means issues such as who manages the company and whether those managers are given equity as part of an incentive package will be negotiated over time, experts said.

"It completely depends on whether the new owners see value in keeping Zell," said Douglas Baird, a corporate reorganization specialist at the University of Chicago Law School. "They have to decide: Is the person at the helm when the company went into the storm the most able person to steer it out?"

This may actually speed up the Cubs sale process. Why? Several reasons. First, it's clear that Zell and the Ricketts family have had a difficult negotiation. Removing Zell from the table won't hurt. But second, the banks that would take the Tribune back from Zell are also the banks that are willing to lend to Ricketts to buy the Cubs.

They would likely be very willing to lend to the Ricketts to diversify their credit risk from $13 billion in Tribune risk to $12.1 billion in Tribune risk and $350 million in Cubs/Ricketts risk.

This bears closer watching. Unlike the Cubs themselves.

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