Emblematic of the hard times felt by media outlets nationwide, advertising revenue declined severely this year, slowing the company’s cash flow since the deal was done.
“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,” media analyst Ken Doctor told the Associated Press.
Much of Tribune’s debt comes from the complex transaction in which the company was taken private, with employee ownership, by real estate mogul Sam Zell last December. It has re-paid approximately $1 billion of its senior credit facility since then, according to the Chicago Tribune.
The Chicago-based company had more than enough cash on hand to make a payment of $70 million due Monday on money borrowed before Zell’s deal, according to the Chicago Tribune, but it was unable to convince lenders to embrace a broader restructuring of its debt.
Tribune’s next major principal payment on the debt — $593 million — is due in June.
Monday’s filing in bankruptcy court in Delaware could give Tribune time to raise cash by selling off assets in a tight credit market. It also could put additional pressure on its lenders to ease their targets, possibly in exchange for higher interest rates, as many other newspaper companies already have done, according to the AP.
The company entered court protection with $13 billion in debt and $7.6 billion in assets.
“So, how did we get here? It has been, to say the least, the perfect storm,” Zell told employees in a memo Monday, according to the AP. “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.”
Zell also told employees that the Cubs franchise is not part of the bankruptcy filing. He also said the company’s operations, including newspapers and broadcast outlets, will function as before during the bankruptcy protection period.
“[R]estructuring focuses on our debt, not on our operations,” Zell said, reported the Chicago Tribune.
Tribune has cut costs this year by reducing the staff and size of its newspapers, including the Chicago Tribune and Los Angeles Times. It also has sold daily newspaper Newsday to Cablevision and part of its stake in the CareerBuilder.com employment site to Gannett Co.
To generate additional cash, Tribune also has been looking to sell the Cubs, Wrigley Field and the company’s 25 percent stake in a regional sports cable channel. But a tight credit market has made it tough for potential buyers to obtain loans.
Tribune also owns the Sun of Baltimore, the Hartford (Conn.) Courant, six other daily newspapers and 23 television stations.