Bankruptcy for the Tribune Co.: A good thing or the beginning of the end?
As the cable newschannels chewed over government efforts to bail out the Big Three automakers today, a new financial crisis emerged even closer to home: the decision by media giant Tribune Co. to declare Chapter 11 bankruptcy today.
Though some analysts predicted this move was likely when real estate mogul Sam Zell first moved to buy the company last year, the news still sent shockwaves through the newspaper industry. After all, Tribune publishes a number of well-regarded newspapers nationally (Los Angeles Times, Baltimore Sun, Chicago Tribune) and two of Florida's best-known papers (Orlando Sentinel, Sun-Sentinel in Fort Lauderdale) and 23 TV stations including two stations each in Seattle, Hartford, Conn., New Orleans and Indianapolis.
In short, Tribune Co. -- to be distinguished from Media General, parent company of the Tampa Tribune -- owns a huge chunk of America's media. Like many media titans, Zell had the misfortune of borrowing a huge amount of money to buy a huge media company right before the bottom dropped out of both the newspaper economy and the American economy in general.
Now the Tribune Co. faces the same questions every media chain is confronting in this disastrous economy: How do you meet massive debt payments ($1-billion in 2008 and $500-million by next June, by one report), when advertising is sinking and newsprint costs are rising? How do you put out a quality product when the demands to cut costs require trimming staffs and shrinking publications?
Usually, a business would sell assets. But a planned sale of the Chicago Cubs seems hobbled by the awful credit crisis. And there's nobody who seems willing to buy newspaper businesses these days -- just ask the owners of the Miami Herald and Rocky Mountain News.
The restructuring could work in Tribune's favor. But Zell himself has called the purchase the "deal from hell," and today's news doesn't seem likely to change that definition.
Click below to see the press release.
Tribune Company to Voluntarily Restructure Debt Under Chapter 11
Publishing, Interactive and Broadcasting Businesses to Continue Operations
Chicago Cubs and Wrigley Field Not Part of Chapter 11 Filing; Monetization Efforts to Continue
CHICAGO, Dec. 8 /PRNewswire/ -- Tribune Company today announced that it is voluntarily restructuring its debt obligations under the protection of Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The company will continue to operate its media businesses during the restructuring, including publishing its newspapers and running its television stations and interactive properties without interruption, and has sufficient cash to do so.
The Chicago Cubs franchise, including Wrigley Field, is not included in the Chapter 11 filing. Efforts to monetize the Cubs and its related assets will continue.
"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," said Sam Zell, chairman and CEO of Tribune. "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.
"We believe that this restructuring will bring the level of our debt in line with current economic realities, and will take pressure off our operations, so we can continue to work toward our vision of creating a sustainable, cutting-edge media company that is valued by our readers, viewers, and advertisers, and plays a vital role in the communities we serve. This restructuring focuses on our debt, not on our operations."
The company filed today for Court approval of various, customary First-Day Motions, including: maintaining employee payroll and health benefits; the fulfillment of certain pre-filing obligations; the continuation of the Tribune's cash management system; the ability to honor all customer programs. The company anticipates its First-Day Motions will be approved in the next few days.
While the company has sufficient cash to continue operations, to supplement its cash availability in the event of even more significant declines in its operating results, the company has negotiated an agreement with Barclays to maintain post-filing its existing securitization facility. Barclays has also agreed to provide a letter of credit facility. The company expects to submit these agreements to the Court for approval as part of its First Day Motions.
Since going private last year, Tribune has re-paid approximately $1 billion of its senior credit facility. During this time, the company has been rewriting the business model for its media assets with the goal of building a sustainable, innovative, competitive company that provides relevant products for its customers and communities.