Chicago Tribune near bankruptcy
In a shocking news story, the Wall Street Journal reports that the media company Tribune Company, which publishes the Chicago Tribune, is exploring bankruptcy. While advertising revenue has contracted significantly, impacting all major media companies, it was not expected that this would lead to bankruptcy. Below is a snippet of the Journal story.
Tribune Co. is preparing for a possible filing for bankruptcy-court protection as soon as this week, according to people familiar with the matter, in another sign of trouble for the newspaper industry.
In recent days, as Tribune continued talks with lenders to restructure its debt, the newspaper-and-television concern hired Lazard Ltd. as its financial adviser, as well as legal counsel for a possible trip through bankruptcy court, according to people familiar with the matter.
A Tribune spokesman said the company doesn’t comment on rumors or speculation. Tribune owns eight major daily newspapers, including the Los Angeles Times, Chicago Tribune and Baltimore Sun, and a string of local TV stations.
A spokesman for investment bank Lazard didn’t respond to a request for comment.
Tribune’s latest actions underscore the deepening distress enveloping Tribune and other newspaper publishers. Their businesses are being battered by dwindling advertising sales, and they are carrying debt loads that are unmanageable under current market conditions. Insider insiders expect some papers will need to fold or seek protection from creditors to reorganize in coming months.
Tribune has been on wobbly footing since last December, when real-estate mogul Samuel Zell led a debt-backed deal to take the company private. Tribune so far has stayed ahead of its $12 billion in borrowings with the help of asset sales. Now, however, dwindling profits are tightening the noose.
The company’s cash flow may not be enough to cover nearly $1 billion in interest payments due this year, and Tribune owes a $512 million debt payment in June.
A toxic mix of debt and a monumental downturn may well be enough to take down one of America’s most prestigious media empires. This turn of events was not entirely unexpected as the over-leveraged company had a very poor debt credit rating. It’s most recent 10-Q filing with the SEC from 10 Nov 2008 said the following:
As of Nov. 7, 2008, the Company’s corporate credit ratings were as follows: “B-” with negative outlook by Standard & Poor’s Rating Services, “Caa2” with negative outlook by Moody’s Investor Service and “CCC” with negative outlook by Fitch Ratings.
However, this will not be the last such announcement of a major U.S. company before we hit bottom.
UPDATE: The Tribune has now filed for bankruptcy. See story here.