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Owner of L.A. Times files for bankruptcy

December 09, 2008|James Rainey and Michael A. Hiltzik | Rainey and Hiltzik are Times staff writers.

Those efforts failed in part because economic conditions have made projecting the course of the company's revenue and earnings exceptionally difficult: Not only are projections of the length and depth of the recession hard to come by, but also the continuing credit crunch has injected uncertainty into even routine business transactions.

Tribune reported last month that its operating revenue for the third quarter ended Sept. 30 decreased 10%, to $1 billion, as advertising revenue fell 19% compared with a year earlier.

Tribune's debt service costs have been running at about $1 billion a year. A $512-million principal payment related to the buyout is due in June.

Money for that payment was to come from asset sales, particularly the sale of the Chicago Cubs baseball franchise. That sale has been delayed in part because of the credit crisis and is now expected to take place in 2009.

Some analysts have estimated the value of the Cubs, the team's landmark Wrigley Field ballpark and other associated real estate at more than $1 billion. The Cubs and the related properties were excluded from the bankruptcy filing, the company said, to enable the sale to proceed.

The big losers in the Tribune bankruptcy may be banks and bond investors that funded Zell's buyout.

The credit analysis firm Fitch Ratings said Monday that the bank lenders that provided the bulk of the financing might recover as little as 31% of the investments.

For other debt holders, Fitch said, "0% recovery is realistic."

The bond market had anticipated Tribune's looming distress. As recently as two weeks ago, some Tribune bonds were trading as low as 14 cents on the dollar.

In most corporate bankruptcies, the holdings of equity investors are largely wiped out. In Tribune's case, all of the company's equity is held by an employee stock ownership plan, or ESOP. As yet, the company has not allocated any shares in the ESOP to employees.

Tribune said it hoped to preserve the ESOP structure, which gives it valuable tax exemptions.


Times staff writers Tom Petruno and Tiffany Hsu contributed to this report.



Tribune Co. at a glance

The Chicago company, founded in 1847, is now controlled by real estate magnate Sam Zell.

Newspapers: Los Angeles Times, Chicago Tribune, Baltimore Sun and five other metropolitan dailies

Broadcasting: Twenty-three television stations including KTLA-TV Channel 5, as well as cable station WGN America

Sports: The Chicago Cubs baseball team, which is for sale and not part of the bankruptcy

Employees: About 16,000

What's next: The company wants to renegotiate its debt with lenders and other creditors under the supervision of the Bankruptcy Court. Creditors will have to decide how much of a break they're willing to give the company and what to demand in return. Typically in Chapter 11 bankruptcies, creditors exchange some portion of the debt for partial or total ownership of the business. The renegotiation process can take many months.

Sources: Tribune Co., Times research

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