Sam Zell Buys Tribune With Leveraged Debt

So far, the lenders have proved remarkably robust. Once they can do no more damage to one group of borrowers… they move on to the next! Techs, telecoms, dotcoms, subprime… now they are falling all over each other to lend money to private equity deals.

Investors’ “appetite for risk rises,” reports Bloomberg – focusing on the growing appeal of futures contracts over boring old bonds. With all the trillions of dollars worth of derivatives already passing through the world’s financial digestion, a trade war with China getting underway… and perhaps a real war with Iran (Russian intelligence sources say it’s brewing in a matter of days)… you’d think it would be time to push away from the table and light a cigar. But no… they’re still chowing down. “Deals… deals… deals – give me more deals!”

Sam Zell just scored a big one – buying the Tribune (NYSE: TRB) company. It took $8 billion to swing the deal, according to the press reports. But Zell put in only $315 of his own money. The rest was ‘leveraged’ – debt, in other words. How? It’s not clear but there is speculation that Zell is using a leveraged Employee Stock Ownership Plan (ESOP). That is, he will borrow a huge amount of money through the plan and have employees vest into the stock over time as a pay back. A big attraction to the new owners would be the significant tax benefits, but what happens if the value of the company declines in the future, as it might, with all the new debt added?

We don’t know. But there is debt everywhere. If it ever gets marked down… there will be a lot of unhappy investors around. Reports also say that Tribune might invest a part of employees’ pensions in the new firm… without even seeking the beneficiaries’ permission.

Maybe lending billions to a real estate tycoon so he can buy into a newspaper business, whose sales must be under threat from the Internet, is a good financial move. Maybe it is not. We have not looked, but there is bound to be Mr. Goldman and Mr. Sachs in the deal somewhere.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

Leave a Reply

2 Comments on "Sam Zell Buys Tribune With Leveraged Debt"

Notify of
Sort by:   newest | oldest | most voted
Allen Jacobsen
Dear Bill Bonner , I read with interest your article on Sam Zelli . The part that interests me the most is the comment about an imminent attach on Iran in the next few days (according to a source in Russian Intelligence ). As no other media source has mentioned this possibility I wonder at the veracity of your information . Does Bill Bonner have special access to Russian intelligence ? Comments by you , Dan denning and others along the lines of the above and the many comments on bursting bubbles that never seem to burst , makes an… Read more »
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to