Tribune Company filed for bankruptcy protection in a federal court in
Delaware on Monday, as the owner of The Los Angeles Times, The Chicago
Tribune and the Chicago Cubs baseball team struggled to cope with
rising debt and falling ad revenue.
Tribune, which was acquired last year by billionaire real
estate investor Samuel Zell, had hired bankruptcy advisers like Lazard
and the law firm Sidley Austin in recent weeks as it negotiated with
creditors over debt covenants.
It is only the latest and
biggest sign of duress for the newspaper industry yet. Several
newspaper companies have struggled to cope with declining revenues and
mounting debt woes. Tribune has pared back the newsrooms of many of its
papers, and it sold off Newsday to Cablevision's Dolan family earlier
this year. It is unclear what Tribune's filing means for other
newspaper publishers on the brink.
Over the last year, we have made significant progress
internally on transitioning Tribune into an entrepreneurial company
that pursues innovation and stronger ways of serving our customers, Mr.
Zell, who holds the titles of Tribune chairman and chief executive,
said in a statement. Unfortunately, at the same time, factors beyond
our control have created a perfect storm a precipitous decline in
revenue and a tough economy coupled with a credit crisis that makes it
extremely difficult to support our debt.
The Tribune Company owns 23 TV stations and 12 newspapers,
including two of the eight largest in the country by circulation. As of
Sept. 30, The Los Angeles Times had weekday circulation of 739,000 and
the Chicago Tribune had 542,000.
Tribune has been trying to sell the Chicago Cubs baseball
team; the team's stadium, Wrigley Field; and the company's share in a
regional cable sports network. Such a deal, which could bring the
company more than $1 billion, has been a crucial part of its strategy
since last year.
But the sale originally expected to take place before the
last baseball season has been delayed by several factors, including the
tight credit market.
It is not clear how recent federal allegations of insider
trading against Mark Cuban, believed to be the highest bidder, could
affect the sale.
In a court filing, Tribune said it had nearly $13 billion in
debt, compared to $7.6 billion in assets. Most of that debt was taken
on when Mr. Zell acquired the company a deal he struck using mostly
borrowed money. All of the now privately held company's equity is owned
by an employee stock-ownership plan, which is likely to get wiped out.
(Because the ESOP is relatively new, its losses are likely to be small.
When United Airlines filed for bankruptcy in 2002, its employee plan,
created in the mid-1990s, suffered much bigger losses.)
The company had to contend with hefty interest payments over
the next year. In its court filing, Tribune listed a $69.6 million bond
issue that was to mature on Monday.
Another pressing problem was a maintenance covenant on some
of its debt that limits its borrowings to no more than nine times
earnings before interest, depreciation and amortization.
Even if the company continues to make interest payments,
failure to maintain that level of debt means technical default which
does not always lead to a bankruptcy filing. Other newspaper publishers
have halted making interest payments on their debt, but have yet to
Tribune said in a statement that it has enough cash to keep
operating as usual. Barclays, one of its existing lenders, agreed to
provide a letter of credit facility and to maintain an existing
financing facility, both of which are likely meant to keep the company
operating through the bankruptcy process.
The top creditors listed by Tribune in its court filing
include big banks like JPMorgan Chase, Merrill Lynch and Deutsche Bank.
JPMorgan listed some of the firms it had syndicated its debt to as
well; that list comprises private investment firms like Kohlberg Kravis
Roberts's KKR Financial, Highland Capital Management and Davidson
Kempner Capital Management.
A CreditSights analyst, Jake Newman, wrote in a research
report published last month that Tribune avoided technical default in
the third quarter partially through some accounting adjustments. We
think the company will have difficulty meetings its year-end covenant
compliance, Mr. Newman wrote.
Tribune hired Lazard several weeks ago to assess its
options, these people said. It also hired Sidley, a longtime outside
adviser to Tribune that has a well-respected bankruptcy practice as
In its filing Monday, Tribune also said that it has retained
Alvarez & Marsal, a restructuring adviser, as a consultant. Alvarez
& Marsal is also advising Lehman Brothers, the collapsed investment
bank whose filing was the largest corporate bankruptcy in American
Tribune's problems have long been reflected in the price of
its bonds. Tribune bonds maturing Aug. 15, 2010 with a 4.88 percent
coupon traded at $13.25 on Friday, suggesting severe levels of
Printed courtesy of author Michael J. de la Merced and the New York Times