Chapter 11 is the new chapter for Tribune Company


A year after taking Tribune Company private in a massive leveraged buyout, that huge debt load has led CEO Sam Zell to seek protection from a Federal Bankruptcy Court to reorganize that capital structure under Chapter 11 of the Bankruptcy Code. With Randy Michaels as COO and quite a few other Jacor veterans on board, Tribune has gone through a lot of changes that Zell says have made it an entrepreneurial and innovative company. "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,” Zell said as the company put payments on its $12 billion in debt on hold while it goes through the Chapter 11 reorganization.

Folks at Tribune HQ must have been working through the weekend to prepare for Monday’s court filing. The corporate website already has numerous pages posted to answer questions about the Chapter 11 filing for vendors, advertisers and others. The general Q&A seems to be aimed at assuring employees that heading to bankruptcy court was the best option.

“Many prominent companies have used Chapter 11 to reduce debt and position themselves for future growth.

This restructuring is the best option we have to take pressure off of our operations so we can pursue our vision of creating a sustainable, cutting-edge media company that is valued by our readers, viewers, and advertisers, and that plays a vital role in the communities we serve.

What everyone should remember is that last year, Tribune’s board of directors elected that going private was the company’s best option. As a group, Tribune employees collected about $900 million through 401(k)s and other plans,” the Q&A stated.

Under the tax-advantaged structure that Zell used to take Tribune private, the employees are the owners under an Employee Stock Ownership Plan. Zell personally invested $315 million for stock options which would give him a 40% stake. So, what happens to the ESOP? “The ESOP is part of the ownership structure, so its value and role long-term will be determined in the restructuring,” the Q&A told those employee owners. It also said there will be no layoffs resulting from the Chapter 11 filing. “This filing is about our debt, not our operations,” it stated.

Tribune owns only eight newspapers, but some of them are among the largest dailies in the United States, led by the Los Angeles Times and flagship Chicago Tribune. It also owns the Baltimore Sun, Sun Sentinel (South Florida), Orlando Sentinel, Hartford Courant, Morning Call (Allentown, PA) and Daily Press (Hampton Roads, VA).
Its 23 television stations in 19 markets include 13 CW affiliates, seven Fox, two MyNetworkTV and one ABC. There’s also WGN America distributed nationally on cable. It’s only remaining radio station is WGN-AM Chicago. The company also owns a number of Internet-based operations, both free-standing and related to its newspaper and broadcast peoperties.

In its most recent quarterly report, Tribune said newspaper revenues fell 13.1% to $653.6 million in Q3, with advertising revenues down 19%. Television revenues were off 8.3% to $264.4 million and radio/entertainment revenues were up 1% to $118.9 million. The company posted a net loss from continuing operations of $124 million in Q3, compared to profits of $84 million a year earlier.

RBR/TVBR observation: The newspaper business was already in trouble when Zell did the buyout deal and many observers wondered how Tribune Co. could ever service the debt load. Zell sold assets to reduce that original $13 billion by a billion or so, but meanwhile the US economy was tanking and advertisers were reducing spending – particularly for newspapers, but Tribune’s TV group and lone radio station, WGN-AM Chicago, were also impacted. Zell couldn’t get the sale of the Chicago Cubs and Wrigley Field closed fast enough to keep the books balanced into the New Year, so it was off to bankruptcy court. By the way, the Cubs and Wrigley are still for sale and are not included in the Chapter 11 filing – so give Sam a call if you have a billion bucks lying around.