Stop the Presses: Newspaper Security Has Promise

Since then, the sector has continued to deteriorate with large names such as Gannett (GCI) and McClatchy (MNI) both down sharply. McClatchy, which owns 30 daily newspapers including the Miami Herald, the Fort Worth Star-Telegram, and the Charlotte Observer, now trades lower than it did in 1988.

The publicly traded newspaper publishing sector, everything from tiny American Community Newspapers (ANE) to the mammoth E.W. Scripps (SSP), is only worth about $24 billion dollars, putting the entire industry at just over 10% of the value of Google (GOOG), which uses vast amounts of their content anyway.

One of the largest newspaper companies is no longer publicly traded. Tribune, which owns assets ranging from the flagship newspaper to the Chicago Cubs to WGN-TV, was taken private in an $8.2 billion April buyout by Chicago real-estate titan Sam Zell. Known as the "Grave Dancer" for an uncanny ability to buy assets on the cheap, Zell promptly installed himself as chairman and began an aggressive effort to improve performance.

Yet this past week analysts began suggesting the highly leveraged company could be in danger of defaulting on billions of dollars in debt, despite Zell's numerous asset sales and cost cutting. Industry trends, both circulation and advertising, continue to weaken as the company faces $4 billion in debt and interest payments due by the end of 2009.

Still, Zell's ability to confound the skeptics can't be overstated. And those wishing to bet on his chances of turning the company around might consider a Hail Mary pass on Saturns Tribune (HJS), a Tribune trust-preferred security trading on the NYSE. As you might imagine, it has plummeted, trading down to a recent $4.58 (par is $25) and sporting a near 38% yield. The next interest payment — if it actually is paid — is due on Nov. 15.