I am posting this story today, lucidly written by Michael J. de la Merced in The New York Times about the forthcoming demise – to my surprise – of what has been a key source of stories for me – the consistently robust (or so I thought) Chicago Tribune. The picture shows “billionaire real estate investor Samuel Zell”. Looks like a nice guy to me.
The 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 mountains of 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. (Read the bankruptcy petition here.)
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 file.
Tribune said in a statement that it has enough cash to keep operating as usual. Barclays, one of its existing lenders, agreed to amend an existing $300 million financing facility, as well as to provide a $50 million letter of credit. The latter is part of an overall debtor-in-possession financing package, which is usually extended to companies that file for bankruptcy. More details of the DIP financing could not be learned.
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 well.
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 history.
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 distress.
–Michael J. de la Merced