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Tribune Company In Trouble?

Sam Zell
AP
Sam Zell

Sam Zell saw opportunity in the Tribune Co., when he took it private in April 2007, giving employees a majority stake in the debt-heavy company.

But now he's looking at a potential default. Zell has been slashing pages and staff at the company's papers around the country, including the Chicago Tribune and LA Times, and looking to sell the Chicago Cubs and other non-core assets.

But is it enough? Wednesday Fitch Ratings released a report saying "default (not necessarily bankruptcy) is a real possibility." Fitch's outlook on the company is "Negative," it's current rating on Tribune's IDR "CCC".

For months years now I've been reporting on the sector challenges facing the newspaper industry, and for the last few months, the cyclical downturn in advertising has really taken its toll. Fitch points out that Tribune's classified ads are showing double digit declines (real estate classifieds down more than 40 percent). And now with the economic downturn, Tribune and Zell no longer have a cushion. There are a few things working in Zell's favor: the non-core assets he plans to sell, like the Cubs, would provide a key infusion of liquidity.

But when it comes to the potential for Tribune to default, Fitch points to the fact that only 38 percent of the company's total debt is fixed, leaving 62 percent that's exposed to floating interest rate risk.

When Zell took over the newspaper giant, Wall Street wondered what he was thinking, and if the distressed real estate mogul could turn the struggling business around. With newspapers seeing their one big hope -- online revenue--falling in this ad market, I wonder what Zell's plan is now.

    • Ad sales at Media General papers plunge in Sept.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.