Deals

Zell-backed Tribune files for bankruptcy

The Chicago-based media company failed owing to the $13bn of debt loaded onto its balance sheet when it was acquired by billionaire real estate investor Sam Zell last year. The company said in its bankruptcy filing it had just $7.6bn of assets. Zell invested $315m in the deal.

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Tribune Company, the publisher of the Chicago Tribune and the Los Angeles Times, has filed for bankruptcy under a $13 billion debt load.

The company, which was acquired by billionaire real estate investor Sam Zell in December 2007 in an $8 billion deal, has been working feverishly with its lenders to negotiate new terms on its debt.

Tribune has about $13 billion of debt and just $7.6 billion of assets, according to a bankruptcy filing. Some of its biggest lenders are JPMorgan Chase, Deutsche Bank and KKR Financial, which lent the company $240 million, the filing said. 

Tribune has been struggling with declining advertising revenues and circulation numbers as readers and

Sam Zell

advertisers shift online. The problems are endemic in the newspaper industry and have been compounded by fixed costs for salaries, printing, raw materials and delivery infrastructure.

Fixed costs and declining ad revenues, combined with the obligation to pay off huge amounts of debt, have especially hurt Tribune, according to Tom Corbett, equity analyst covering newspapers and radio with Morningstar.

“If they didn’t have this debt, they’d be in a much better position to weather the downturn,” Corbett said. “The debt load creates an acute sense of urgency they might not be in if they weren’t so leveraged.”

According to numbers from the Newspaper Association of America, advertising revenues for newspapers increased in 2003, 2004 and 2005, and experienced a decline of 2 percent in 2006. That decline accelerated to 12 percent by December 2007, when the Tribune deal was finalised. In the first quarter of 2008, advertising revenues were down 14 percent, 16 percent in the second quarter and 19 percent by the third quarter.

Zell acquired the Tribune, which owns eight daily newspapers, including The Baltimore Sun, Chicago Tribune and the LA Times, last year in deal in which he invested $315 million. As part of the transaction, Tribune agreed to sell the US baseball team, the Chicago Cubs.

Standard & Poor’s slashed Tribune’s credit to junk last month on the expectation that the company would default on its huge debt repayment obligations, which total more than $1 billion this year alone. The company also must make a $512 million interest payment in June 2009, according to The Wall Street Journal.