Tribune Co. files for bankruptcy protection

Media conglomerate Tribune Co., smothered by $13 billion in debt and weak prospects for generating cash through advertising, on Monday became the first major newspaper publisher to seek bankruptcy protection since the Internet began siphoning readers from traditional outlets.

Although Tribune's next major principal payment on the debt, of $593 million, isn't due until June, has been in danger of missing lender-imposed financial targets at year's end. Those targets are based on the level of Tribune's debt relative to its cash flow, and become harder to meet as revenue declines, even if the debt itself doesn't increase.

Other newspaper companies have also struggled with their debts, but many have successfully negotiated with lenders to ease their targets in exchange for higher interest rates.

"Tribune's debt was so outsized and so disproportional to its cash flow compared to these other companies that it can be the sore thumb sticking out rather than an example of the industry," said Ken Doctor, media analyst with Outsell Inc.

The Tribune owns the Chicago Cubs baseball franchise, as well as the Los Angeles Times, Chicago Tribune, The Sun of Baltimore, The Hartford (Conn.) Courant, six other daily newspapers and 23 television stations. Most of the company's debt comes from the complex transaction in which the company was taken private, with employee ownership, by real estate mogul Sam Zell last year.

To make a payment this year, Tribune sold the Long Island daily Newsday to Cablevision Systems Corp. for $650 million.

To generate additional cash, the Chicago-based company has been looking to sell the Cubs, Chicago's storied Wrigley Field and the company's 25 percent stake in a regional sports cable channel. But a tight credit market has made it tougher for potential buyers to obtain loans.

And while Tribune had planned on meeting its obligations with lenders through income at its various properties, the recession has led consumers and advertisers to severely cut spending this year, exacerbating pressures the industry already was facing because of the migration of readers to the Internet.

"So, how did we get here? It has been, to say the least, the perfect storm," Zell wrote in a memo to employees. "A precipitous decline in revenue and a tough economy have coupled with a credit crisis, making it extremely difficult to support our debt. All of our major advertising categories have been dramatically impacted."

Monday's filing, made in bankruptcy court in Delaware, could give Tribune time to raise cash by waiting until the credit market eases to sell off assets. It also could put additional pressure on its lenders to ease the financial targets that Tribune must meet.

The company entered court protection with $13 billion in debt and $7.6 billion in assets.

Zell said the company's operations will function as before during the bankruptcy protection period. He also said in his memo that the Cubs franchise is not part of the bankruptcy filing. The Cubs issued a separate statement saying that the timetable for a sale has not changed.

John Penn, a partner who specializes in bankruptcy at Haynes & Boone LLP, said the Tribune's decisions about whether to sell papers or other assets would boil down to one issue: "If it makes cash, keep it. If it loses cash, get rid of it," he said. "And that's either by selling it, closing it or whatever it takes to stop the bleeding."

Tribune's biggest unsecured creditors are its lenders, led by JPMorgan Chase Bank and Merrill Lynch Capital Corp. JPMorgan is the administrator of $8.57 billion in senior debt and holder of about $1.05 billion of that. Others include Deutsche Bank AG, New York-based investment management firm Angelo Gordon & Co. LP, hedge fund Highland Capital Management LP and Goldman Sachs Group Inc.

Barclays Capital Inc., which bought key assets from Lehman Brothers Holdings Inc., is also among Tribune's creditors, with about $142.9 million in interest rate swaps.

Media industry players were also listed among the creditors. Warner Bros. Television is owed $23.7 million, Twentieth Television Inc. $8.1 million, Buena Vista Entertainment Inc. $6.2 million and NBC Universal Domestic Television $4.9 million.