Falling Angel, Devil's Child

In the finance world, companies that experience a drop in credit status are known as "falling angels." Tribune is knocking on Lucifer's door after its senior debt rating was recently slashed.

Credit rating agency Fitch stated last week that Tribune's junk bonds just got junkier, creating the backdrop for potential bankruptcy. In financial talk, that means people who hold these bonds can move to the back of the line. Fitch said Tribune's senior debt holders are likely to get anywhere from 31 cents to 50 cents on the dollar (ouch!) in the event of a "distress." Read bankruptcy. Bear in mind that senior debt is the Top Dog of debt. It gets settled first in a bankruptcy. But nobody said investors would get every penny they are owed.

Tribune's cash-generating machine is stuck in neutral due to a downbeat economy and negative newspaper market. Without sufficient cash on hand, Tribune can't pay down its $13 billion debt.

Tribune entered Junk Hell several years ago. It became a junk bond company in 2006 -- more than a year before Sam Zell came on the scene -- when Standard and Poor's slashed its credit rating. At the time, Tribune's debt was a mere $5 billion. Since then, S&P hasn't stopped slashing Tribune's credit rating.

It's getting crowded in debt hell, because Tribune is keeping company with many fallen angels. Among them: auto giants General Motors, Ford and Chrysler; mortgage company Countrywide and home builders Toll Brothers and Lennar Homes. Fannie Mae and Freddie Mac are approaching junk status, too.

The New York Times may get pushed down if it doesn't cut its dividend, which credit raters said it needs to do to preserve cash.

When Tribune paid off $800 million of debt after it sold Newsday, I thought perhaps things aren't that bad after all. But it seems Tribune is barely keeping pace. The reduction in Tribune's debt rating fans the flames of hell because company's coming.