Tribune Co. files for bankruptcy


The media conglomerate was smothered by a drop-off in advertising and a crushing $13 billion in debt from the company's takeover a year ago by Chicago real estate mogul Sam Zell.

Chapter 11 would buy the Tribune Co. time to put its finances in order. Analysts said the company will almost certainly have to sell off some of its major holdings -- and that could prove extremely difficult because of the bad economy and the poor outlook for newspapers.

"When you look at the near term, prospects for the company and the industry are certainly not very bright," said Dave Novosel, an analyst with the Gimme Credit research firm.

Tribune Co. employees, who received an ownership stake in the company when Zell came in, could also see the value of their holdings wiped out.

Tribune Co., which has 20,000 employees, owns baseball's Chicago Cubs as well as 10 daily newspapers, including The Hartford (Conn.) Courant and the Orlando (Fla.) Sentinel, cable channels and 23 TV stations. Its papers' total circulation puts the Tribune Co. among the top three most-read newspaper groups nationwide.

Other newspaper companies have also struggled with heavy debt, a downturn in advertising and the loss of readers to the Internet, but the Tribune Co. was something of a special case.

"Tribune's debt was so outsized and so disproportional to its cash flow compared to these other companies that it can be the sore thumb sticking out rather than an example of the industry," said Ken Doctor, media analyst with Outsell Inc.

Most of the company's debt comes from the complex deal engineered by Zell. The company's lending agreements require it to keep its debt at a certain point relative to its cash flow. Those deals became harder to meet as revenue declined because of the poor economy and competition from the Internet.

Although the Tribune Co.'s next major debt payment is not due until June, the company was in danger of missing the financial targets set by its lenders. The bankruptcy filing could give the Chicago-based company some time to press its lenders to ease their targets.

To make a debt payment this year, the Tribune Co. sold the Long Island daily Newsday to Cablevision Systems Corp. for $650 million. The Tribune Co. already has made hundreds of layoffs at its papers and reduced the number of pages it puts out.

"So, how did we get here? It has been, to say the least, the perfect storm," Zell, chairman and chief executive, wrote in a memo to employees. "A precipitous decline in revenue and a tough economy have coupled with a credit crisis, making it extremely difficult to support our debt. All of our major advertising categories have been dramatically impacted."

To generate cash -- and meet the next principal payment of $593 million, due in June -- Tribune has been looking to sell the Cubs, Chicago's Wrigley Field and the company's 25 percent stake in a regional sports cable channel. But a tight credit market has made it tougher for potential buyers to obtain loans. (Zell said the Cubs are not part of the bankruptcy filing.)

Longtime Chicago Tribune reporter Maurice Possley, who resigned after winning this year's Pulitzer Prize for investigative journalism, said many talented people have left the paper in recent months, and he worries about the ones who remain.

"I really mourn what is happening," he said in an e-mail. "I hope this great paper can emerge and survive. It would be a tremendous loss to the public if it cannot be saved. I sincerely hope Sam Zell does not dance on this grave."

Brent Jones, a Sun reporter and union leader, said the bankruptcy filing unnerved the newsroom and prompted questions about whether the company might cut more jobs or sell the paper.

The company said severance payments to recently laid-off employees, deferred compensation and other payments to former workers have been discontinued. Essentially, those former employees become creditors who will have to get in line in bankruptcy court.

In filing for bankruptcy, the company reported $13 billion in debt and $7.6 billion in assets.

John Penn, a bankruptcy lawyer at Haynes & Boone, said decisions about whether to sell papers or other assets would boil down to this: "If it makes cash, keep it. If it loses cash, get rid of it. And that's either by selling it, closing it or whatever it takes to stop the bleeding."

Stephen Lubben, a bankruptcy professional at Seton Hall Law School in Newark, N.J., said Tribune employees are particularly vulnerable because they participate in an Employee Stock Ownership Plan. Stockholders are last to be paid in bankruptcy, and often end up with nothing, with the stock getting wiped out.

Employees will not see all of their retirement savings wiped out, though. The company has continued making contributions into traditional retirement plans that are not affected, and many employees have separate 401(k) programs, said Corey Rosen, executive director for the nonprofit research group National Center for Employee Ownership.

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