Debt-Saddled Tribune Co. Files for Bankruptcy Protection

By Frank Ahrens
Washington Post Staff Writer
Tuesday, December 9, 2008

Media giant Tribune Co. yesterday became the first major newspaper or chain in several decades to enter Chapter 11 bankruptcy protection, as the debt-saddled company fights sharply dropping advertising revenue and an ongoing recession.

The move will allow Tribune to stay in business while it seeks better terms from its creditors. The company stressed that all of its businesses, which include eight major daily newspapers and 23 television stations, will continue their day-to-day operations while Tribune restructures its debt.

According to Tribune's bankruptcy filing in a Delaware court yesterday, the company has $12.9 billion in debt and $7.6 billion in assets.

Tribune's largest creditor is J.P. Morgan Chase, which is owed $8.6 billion. Merrill Lynch is second, at $1.6 billion, and Deutsche Bank is third, at $900 million.

Chicago-based Tribune owns properties in most of the nation's largest cities. Its holdings include the Chicago Tribune and Los Angeles Times; cable television superstation WGN in Chicago; the Baltimore Sun; and WDCW-50 in Washington, a CW affiliate. The company also owns Major League Baseball's Chicago Cubs and Wrigley Field, which are for sale and outside of bankruptcy protection.

Real estate mogul Sam Zell engineered an employee-owned transition of Tribune to private status in December 2007 with $8.2 billion in new loans, layering on top of the $5 billion in debt already being carried by the company. Even then, Tribune was reporting declining ad revenue and newspaper circulation.

This placed the company in a perilous position when the economic crisis and credit crunch exploded in late summer. Plummeting Tribune profits put the company in danger of being unable to meet its debt covenants, according to a source close to the company who spoke on condition of anonymity because Tribune is privately held.

"Their newspapers are profitable," newspaper analyst John Morton said. "But their profits have dropped so much and they're so heavily leveraged that they've been put in a hole."

Or, as Tribune said in a release yesterday: "We simply have too much debt."

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

To cut costs, Tribune has mandated hundreds of layoffs across the company. Those who did not take their severance in a lump sum could be hurt by the bankruptcy. "All ongoing severance payments, deferred compensation and other payments to former employees have been discontinued and will be the subject of later proceedings before the [bankruptcy] court," stated an internal Tribune document sent to employees yesterday.

The future of the employee stock-ownership plan is unclear, the company said.

The "vast majority" of retirement and pension plans are safe under the restructuring, the company said yesterday, but some may not be, given the number and complexity of the various plans offered during Tribune's 161-year history.

"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," chief executive Zell said in a statement yesterday.

"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."

Newspapers have been losing average daily circulation since 1987, though advertising revenue remained high. But the rise of the Internet and other options for news, information and reader time have sent readers and advertisers away from newspapers in the past half-decade, crippling them.

Despite the hard times, the most recent newspaper bankruptcy of note may have been that of The Washington Post -- in 1933.

Morton said Tribune is only the most prominent and first of several other newspaper companies to face potentially severe debt problems.

Morton noted that the Pennsylvania-based Journal Register chain of smaller papers recently borrowed about $500 million to buy newspapers "in, of all places, Michigan." The Journal Register is putting properties up for sale and its stock is trading for pennies per share.

Morton also pointed to McClatchy Co., the nation's second-largest newspaper chain, which took on $3.5 billion in new debt and assumed $2 billion in existing debt when it bought the Knight Ridder chain in 2006. Since that purchase, shares of McClatchy have plummeted from $48 per share to close yesterday at $2.46.

And yesterday, the New York Times reported that its parent company will put its new Manhattan skyscraper up as collateral as it seeks $225 million in loans to offset a "cash-flow squeeze."

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