Last March, the Newspaper Association of America singled out 2007 as the worst downturn in the newspaper print ad business in over 50 years. That was three months into 2008, well before the continued deterioration of the economy this summer and fall, before the banking and automotive industries imploded. 2008 is guaranteed to register as worse.
Newsprint costs have been up. Income down. (Newspaper ad sales were off 18% in Q3(Bloomberg)). Classified ads have further migrated to the Internet. Consumption habits are changing. Traditional local ad buyers (like car dealers) are spending much less.
Punctuating how bad it’s become, the history books will record 2008 as home to the first substantial newspaper bankruptcy in years, decades.
Monday, hindered with debt from last year’s leveraged buyout, the Tribune Company, parent to the Chicago Tribune, The LA Times and the Baltimore Sun, made truths out of early rumors and sought the protection of the Delaware court.
According to the bankruptcy filing, Tribune was carrying $12.972 billion in debt against assets of only $7.6billion. There was cash on hand to service the immediate requirements, including $69.5m in Series E notes due December 8th but earnings were a greater challenge.
Tribune’s debt covenants obligated the company to keep its debt load at a ratio of no more than 9x EBIDTA per quarter. In the third quarter, the company reported a loss of $124m. Operating profits were off 83% and publishing revenue was down 19% year over year.
This weakening financial performance, coupled with no significant recent asset sales to buoy cash flows, made it likely Tribune would fail to meet the requirement and been in default. Rather than step into an almost certain involuntary bankruptcy a few months from now, Tribune took timing into its own hands… and in doing so keeps millions in the cash column.
Under the protection of the court, the company can run ahead less fettered. Assets can be sold off with less urgency – hopefully as a result, yielding higher prices. A $512m principal payment due in June won’t loom as large.
The Chicago Cubs and Wrigley Field are the only major properties the company didn’t bring under the shelter. (See full lists of subsidiaries and creditors at the bottom of the page).
For the past year, both the team and field have been for sale. Talks to sell them, however, have been delayed by both strategic decisions and the health of the financial markets. Had a deal happened sooner, the cash yield would likely have made the bankruptcy declaration unnecessary.
To make a loan payment earlier this year, Tribune sold Newsday for $650m.
“The focus of the filing today is 100% on relieving the pressure on the company from its debt.” Sam Zell told reporters at the Tribune’s own papers.
In a separate memo, he tried to reassure staff that pensions and compensation won’t be affected. Only the employee’s stock ownership plan will be a victim of the bankruptcy restructuring.
“How did we get here?” Zell wrote, “it has been, to say the least, a perfect storm. 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.”
Lazard, also busy with fellow Chicago-land company, Midway, is advising the company.
For advertisers, as with staff, it’s expected to be business as usual.
Will Tribune come out of bankruptcy a stronger, more able company? Or will it join Davel Communications (bankrupt) and American Classic Voyages (bankrupt 2001) as black marks on Sam Zell’s otherwise impressive investment resume?
Time will tell. Odds are probably fifty fifty.
To the negative, Zell himself admitted to BusinessWeek in August that while he believes the situation is different, compared to Davel “the first six months seems frighteningly familiar.”
(Zell bought 33% of the countries biggest pay phone provider in 1998. In 2004, its market rendered irrelevant by cell phones, Davel was sold to a rival for a few cents a share.)
One thing is for sure, around the newspaper industry, the Tribune is not alone in needing to secure its cash flows and find a way to take top brands and turn them into top earners.
The New York Times is looking to borrow as much as $225m against its 58% stake in the 8th Avenue tower that is its home.
Alexander Hamilton may have characterized the situation best several hundred years ago when he said, “The publisher of a newspaper in this country, without a very exhaustive advertising support, would receive less reward for his labor than the humblest mechanic.”
It’s time to grab the wrenches and to get to work fixing the printing press.
Full lists of Tribunes creditors and the subsidiaries included in the filing are printed after the "Related Articles" jump.
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•Zell Takes Control of Tribune
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TRIBUNE BANKRUPTCY KEY FACTS AND CREDITORS:
Total Debt as of Dec. 8: $12,972,541,148.00
|Tribune’s Major Creditors|
|•JP Morgan Chase||$8,571,040,000.00||
|•Merrill Lynch Capital||$1,600,000,000.00||
total of assorted Notes due from 2008 to 2096
Interest Rate Swaps
|•Warner Brothers TV (Time Warner)||$23,691,000.00|
Ret. And Deferred Comp
|•Twentieth Television (News Corp.)||$8,051,000.00|
|•Buena Vista (Disney)||$ 6,220,000.00|
|•SP Newsprint Co||$5,153,000.00|
Ret. And Deferred Comp
|•Equity Group Investments||$13,402,189.00||
Suborinated Promisory Notes in names of 5 assorted Tower LLC companies
|•Raymond Jansen Jr.||$2,805,000.00||
Ret. And Deferred Comp
Ret. And Deferred Comp
|•Sony Pictures TV||$2,161,000.00|
|•Nielsen Media Research||$1,874,000.00|
|•Paramount Pictures (Viacom)||$1,691,000.00|
|Tribune Company Properties Included in the Bankruptcy Filing|
|•Tribune Company||•KIAI I Inc.||•TMLS 1, Inc.|
|•435 Production Company||•KPLR, Inc.||•TMS Entertainment Guides, Inc.|
|•5800 Sunset Productions Inc.||•KSWB Inc.||•Tower Distribution Company|
|•Baltimore Newspaper Networks, Inc.||•KTLA Inc.||•Towering T Music Publishing Company|
|•California Community News Corpora||•KWGN Inc.||•Tribune Broadcast Holdings, Inc.|
|•Candle Holdings Corporation||•Los Angeles Times Communications LLC||•Tribune Broadcasting Company|
|•Channel 20, Inc.||•Los Angeles Times International, Ltd.||•Tribune Broadcasting Holdco, LLC|
|•Channel 39, Inc.||•Los Angeles Times Newspapers, Inc.||•Tribune Broadcasting News Network, Inc.|
|•Channel 40, Inc.||•Magic T Music Publishing Company||•Tribune California Properties, Inc.|
|•Chicago Avenue Construction Company||•NBBF, LLC||•Tribune Direct Marketing, Inc.|
|•Chicago River Production Company||•Neocomm, Inc.||•Tribune Entertainment Company|
|•Chicago Tribune Company||•New Mass. Media, Inc.||•Tribune Entertainment Production Company|
|•Chicago Tribune Newspapers, Inc.||•New River Center Maintenance Association, Inc.||•Tribune Finance, LLC|
|•Chicago Tribune Press Service, Inc.||•Newscom Services, Inc.||•Tribune Finance Service Center, Inc.|
|•ChicagoLand Microwave Licensee, Inc.||•Newspaper Readers Agency, Inc.||•Tribune License, Inc.|
|•Chicagoland Publishing Company||•North Michigan Production Company||•Tribune Los Angeles, Inc.|
|•Chicagoland Television News, Inc.||•North Orange Avenue Properties, Inc.||•Tribune Manhattan Newspaper Holdings, Inc.|
|•Courant Specialty Products, Inc.||•Oak Brook Productions, Inc.||•Tribune Media Net, Inc.|
|•Direct Mail Associates, Inc.||•Orlando Sentinel Communications Company||•Tribune Media Services, Inc.|
|•Distribution Systems of America, Inc.||•Patuxent Publishing Company||•Tribune Network Holdings Company|
|•Eagle New Media Investments, LLC||•Publishers Forest Products Co. of Washington||•Tribune New York Newspaper Holdings, LLC|
|•Eagle Publishing Investments, LLC||•Sentinel Communications News Ventures, Inc.||•Tribune NM, Inc.|
|•forsalebyowner.com corp.||•Shepard’s Inc.||•Tribune Publishing Company|
|•ForSaleByOwner.com Referral Service||•Signs of Distinction, Inc.||•Tribune Television Company|
|•Fortify Holdings Corporation||•Southern Connecticut Newspapers, Inc.||•Tribune Television Holdings, Inc.|
|•Forum Publishing Group, Inc.||•Star Community Publishing Group, LLC||•Tribune Television New Orleans, Inc.|
|•Gold Coast Publications, Inc.||•Stemweb, Inc.||•Tribune Television Northwest, Inc.|
|•Green Ca, Inc.||•Sun-Sentinel Company||•ValuMail, Inc.|
|•Heart & Crown Advertising, Inc.||•The Baltimore Sun Company||•Virginia Community Shoppers, LLC|
|•Homeowners Realty, Inc.||•The Daily Press, Inc.||•Virginia Gazette Companies, LLC|
|•Homestead Publishing Co.||•The Hartford Courant Company||•WATL, LLC|
|•Hoy, LLC||•The Morning Call, Inc.||•WCWN LLC|
|•Hoy Publications, LLC||•The Other Company LLC||•WDCW Broadcasting, Inc.|
|•InsertCo, Inc.||•Times Mirror Land and Timber Company||•WGN Continental Broadcasting Company|
|•Internet Foreclosure Service, Inc.||•Times Mirror Payroll Processing Company, Inc.||•WLVI Inc.|
|•JuliusAir Company, LLC||•Times Mirror Services Company, Inc.||•WPIX, Inc.|
|•JuliusAir Company II, LLC||•TMLI-I 2, Inc.||•WTXX Inc.|