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Debt-laden Tribune explores bankruptcy

December 08, 2008|James Rainey | Rainey is a Times staff writer.

The company that owns the Los Angeles Times, Chicago Tribune and Chicago Cubs baseball team is preparing for a possible bankruptcy filing as it attempts to renegotiate $12 billion in debt with banks and other creditors, a Tribune Co. executive said Sunday.

The Chicago media conglomerate hired Lazard Ltd. a little more than a week ago for advice on a possible Chapter 11 filing, though people familiar with internal talks said the company was exploring several options.

A bankruptcy action is possible but not certain.

"We have a few more steps to go, maintaining all our options to do what's best for the company and all stakeholders, including employees," said the executive, who asked not to be named because he was not authorized to speak publicly about the matter.

Tribune and many other newspaper owners, already hurting from the migration of advertising revenue to the Internet, have suffered even bigger setbacks amid the broad economic downturn.

The financial slump also has hampered the company's attempts to sell assets, in particular the Cubs, at a premium price to help it cover accelerated debt payments next year.

"Revenue declines have been dramatically worse, even over the last couple of weeks. It's just really rough," said the Tribune executive. "A number of advertisers just don't have the money to spend right now.

"Some advertisers are still pushing to get through the holiday season, but when others look to cut discretionary spending, we are right at the top of the list," the executive said.

Tribune faces a deadline today on $70 million of unsecured debt from before real estate magnate Sam Zell took control last December in conjunction with an employee stock-ownership plan. A spokesman told the Chicago Tribune, however, that the company could use an existing line of credit to pay the bill.

A much bigger debt payment -- $512 million -- is due in June, and was to come from asset sales that now are hamstrung by the credit crunch. The company's general interest payments amount to about $1 billion a year, and it already has paid down its debt by that amount this year.

"Getting a deal done on the Cubs or on a number of other properties is extremely difficult. Other sources of capital and debt have been significantly hampered," the executive said. "Layer on that a business that has been in decline for years and a failing economy, and it's a perfect storm."

Other media companies, such as Freedom Communications Inc., which operates the Orange County Register, have been struggling with their debt.

Like Freedom, Tribune has been bumping up against agreements that limit debt in relation to earnings. Tribune's loan terms prohibit the amount it owes from exceeding nine times its adjusted earnings, and Fitch Ratings said last summer that the ratio was more than 8.

But the company is believed to be arguing that it is pointless for creditors to insist that Tribune adhere to ratios and guidelines and, instead, they should agree on the payments the company still can make.

Tribune managed to repay $888 million of debt in the third quarter, using proceeds from the sale of receivables, the Long Island newspaper Newsday and a 10% stake in the CareerBuilder job search website.

Tribune is preparing to "do whatever we have to do, but no decision has been made," the executive said.

A former Tribune executive, who continues to follow the company closely, said: "This might all be posturing and positioning. They could be looking for a new [debt] structure . . . without actually having to take the bankruptcy action."

The Zell-led takeover of Tribune came in an $8.2-billion deal that left the company heavily leveraged, and payments became increasingly hard to make as advertising and then the economy slowed.

"We are operating in an exceptionally difficult financial and economic environment," Zell said last month, when the company reported a third-quarter loss of $121.6 million, including one-time charges.

"The newspaper industry continues to see extraordinary declines in ad revenues, and Tribune is no exception."

The company -- owner of eight newspapers, 23 television stations and other assets, including a share of the Food Network -- has laid off hundreds of employees and combined operations in an attempt to pay its bills.

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Times staff writer Michael A. Hiltzik contributed to this report.

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james.rainey@latimes.com

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