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Debt-Ridden Tribune Co. Considers Bankruptcy

By Frank Ahrens
Washington Post Staff Writer
Monday, December 8, 2008

Media giant Tribune Co., saddled with billions in debt since it became a privately held company last year, has hired bankruptcy advisers, according to its flagship newspaper, the Chicago Tribune.

The Chicago-based company owns a coast-to-coast empire with television stations and newspapers in most of the nation's largest cities. Its holdings include the Los Angeles Times; cable television super-station WGN in Chicago; the Baltimore Sun; and WDCW-50 in Washington, the CW affiliate. The company even owns the Chicago Cubs.

Tribune assumed some $13 billion in debt when real estate mogul Sam Zell engineered an employee-owned transition to private ownership one year ago this month. Hopes were high among employees that the company could be re-engineered to be a news company of the 21st century.

But sharply dropping advertising revenue, a decline that has hit almost all of the nation's newspapers in recent years, has put the company in danger of being unable to meet its debt covenants and may force it to seek the shelter of bankruptcy reorganization, according to a source close to the company who spoke on the condition of anonymity because Tribune is privately held.

The company has hired investment bank Lazard and law firm Sidley Austin to examine the company's options, according to an article on the Tribune's Web site.

Bankruptcy, however, may not be the endgame for Tribune: Some creditors feel that newspapers forced into bankruptcy protection have even less chance of repaying their loans.

In November, the company reported a $124 million third-quarter loss, compared with an $84 million profit in the same period of last year.

Tribune is on the hook for about $1 billion per year in loan repayments. The company is eyeing a big payment in June 2009, which had worried analysts.

Tribune declined to comment for this article but directed inquiries to the Chicago Tribune article, which was posted online Sunday evening.

Further darkening Tribune's picture is the ongoing financial crisis. Analysts forecast a dim 2009 for all media companies dependent on advertising from retailers who are likely to cut back on ad and marketing spending or simply be forced out of business. Newspapers also depend on help-wanted ads, which shrink as unemployment rises.

Venerable newspaper chain Knight Ridder was swallowed in June 2006 by rival chain McClatchy Co., which has since watched its stock price lose 90 percent of its value. Over the same period, shares of The New York Times Co. are down more than 60 percent, while shares of The Washington Post Co. are down more than 40 percent.

Tribune has been raising cash by putting assets up for sale. The Cubs and their storied Wrigley Field are on the block and the company hopes for a spring sale, with an expected price tag of several hundred million dollars. However, the pool of potential bidders has shrunk since the team went on the market, as the credit crisis has put financing in doubt for such a large deal.

In May, Tribune sold Newsday to Cablevision for $650 million. Last summer, Zell said he was hiring real estate advisers to ascertain the value of the Tribune and L.A. Times buildings. Staff have been cut across the company in an effort to save money.

The L.A. Times, the largest paper in the chain, has drawn steady interest, with suitors including entertainment mogul David Geffen. Prior to the economic crisis, the paper was estimated to be worth as much as $1 billion. But Tribune was reluctant to sell the paper, which still generates substantial profit.

Asset sales, however, may not be enough to save the venerable chain, which grew from the namesake Chicago Tribune -- the Midwest's paper of record since the mid-19th century -- and expanded with the 2000 purchase of the Times Mirror papers, which included the L.A. Times, the Sun and other papers.

Zell, who made his money in commercial real estate, emerged as the only serious bidder when Tribune was forced onto the sales block by a boardroom revolt staged by a group of minority shareholders who wanted to cash out, angered by the company's falling share price since the 2000 merger.

To finance the deal, Zell put up $315 million of his own money and got more than $8 billion in new loans on top of the company's existing $5 billion in debt, a move many analysts questioned at the time.

Zell got Washington help to take over Tribune.

In order to secure $4.2 billion in new debt, Tribune had to prove to creditors that it would be able to retain the revenue-generating ownership of television stations in cities where it owns newspapers -- a violation of Federal Communications Commission rules. The FCC had given Tribune a number of waivers through the years to allow the so-called cross-ownership, but the waivers required periodic renewal.

However, in December 2007, the FCC granted a permanent waiver to Tribune to allow the cross-ownership of its Chicago stations (WGN radio and TV) and two-year waivers for the other stations, clinching the deal for Zell.

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