December 7, 2008
Tribune Co., in Debt, Could Be Flirting With Bankruptcy
By RICHARD PÉREZ-PEÑA and MICHAEL J. DE LA MERCED
The Tribune Company, which is in danger of falling below the cash flow required under its bonds, is trying to negotiate new terms with its creditors and has hired advisers for a possible bankruptcy filing, according to people briefed on the matter.
It is not clear how seriously Tribune is thinking about seeking bankruptcy protection; analysts and bankruptcy experts say that the hiring of advisers, including Lazard and Sidley Austin, one of the company’s longtime law firms, could be a just-in-case move, or a bargaining tactic. The company would not comment on Sunday.
Tribune went private last December, paying more than $8 billion in a deal that put Samuel Zell, a real estate billionaire, in control of the company. It has struggled since then under the resulting debt, forcing deep cuts at newspapers like The Los Angeles Times, The Chicago Tribune and The Baltimore Sun. It also sold Newsday to raise cash.
Tribune has been trying to sell the Chicago Cubs baseball team; the team’s stadium, Wrigley Field; and the company’s share in a regional cable sports network. Such a deal, which could bring the company more than $1 billion, has been a crucial part of its strategy since last year.
But the sale — originally expected to take place before the last baseball season — has been delayed by several factors, including the tight credit market.
It is not clear how recent federal allegations of insider trading against Mark Cuban, believed to be the highest bidder, could affect the sale.
Rating agencies say Tribune’s short-term problem is not in making payments on its debt. Instead, the company is struggling to comply with a requirement that its main debt from its acquisition of the company not exceed nine times its earnings before interest, taxes, depreciation and amortization.
A quarterly test of that compliance is expected at the end of this month. A failure to comply would mean Tribune had technically defaulted, even if it continued to make payments. Technical defaults can sometimes lead to bankruptcy.
Companies in that position usually negotiate new terms with their lenders, often paying higher interest rates in return for less stringent cash-flow requirements. But such negotiations have become more difficult in recent years, as lenders have become more likely to sell pieces of debt to third parties, which must approve any new terms.
The weak state of newspapers has made some lenders more loath than usual to force bankruptcy, fearing that it could worsen their chance of significant recovery, or at least delay it.
The companies that own The Inquirer and The Daily News in Philadelphia and The Star Tribune in Minneapolis recently suspended debt payments but have not filed for bankruptcy.
As the economy weakens, other lenders have become more aggressive about forcing debtors into bankruptcy when they believe such a move is inevitable, to preserve a company’s valuable cash reserves. Delaying can make it hard to emerge from bankruptcy successfully.
Tribune Co., in Debt, Could Be Flirting With Bankruptcy
By RICHARD PÉREZ-PEÑA and MICHAEL J. DE LA MERCED
The Tribune Company, which is in danger of falling below the cash flow required under its bonds, is trying to negotiate new terms with its creditors and has hired advisers for a possible bankruptcy filing, according to people briefed on the matter.
It is not clear how seriously Tribune is thinking about seeking bankruptcy protection; analysts and bankruptcy experts say that the hiring of advisers, including Lazard and Sidley Austin, one of the company’s longtime law firms, could be a just-in-case move, or a bargaining tactic. The company would not comment on Sunday.
Tribune went private last December, paying more than $8 billion in a deal that put Samuel Zell, a real estate billionaire, in control of the company. It has struggled since then under the resulting debt, forcing deep cuts at newspapers like The Los Angeles Times, The Chicago Tribune and The Baltimore Sun. It also sold Newsday to raise cash.
Tribune has been trying to sell the Chicago Cubs baseball team; the team’s stadium, Wrigley Field; and the company’s share in a regional cable sports network. Such a deal, which could bring the company more than $1 billion, has been a crucial part of its strategy since last year.
But the sale — originally expected to take place before the last baseball season — has been delayed by several factors, including the tight credit market.
It is not clear how recent federal allegations of insider trading against Mark Cuban, believed to be the highest bidder, could affect the sale.
Rating agencies say Tribune’s short-term problem is not in making payments on its debt. Instead, the company is struggling to comply with a requirement that its main debt from its acquisition of the company not exceed nine times its earnings before interest, taxes, depreciation and amortization.
A quarterly test of that compliance is expected at the end of this month. A failure to comply would mean Tribune had technically defaulted, even if it continued to make payments. Technical defaults can sometimes lead to bankruptcy.
Companies in that position usually negotiate new terms with their lenders, often paying higher interest rates in return for less stringent cash-flow requirements. But such negotiations have become more difficult in recent years, as lenders have become more likely to sell pieces of debt to third parties, which must approve any new terms.
The weak state of newspapers has made some lenders more loath than usual to force bankruptcy, fearing that it could worsen their chance of significant recovery, or at least delay it.
The companies that own The Inquirer and The Daily News in Philadelphia and The Star Tribune in Minneapolis recently suspended debt payments but have not filed for bankruptcy.
As the economy weakens, other lenders have become more aggressive about forcing debtors into bankruptcy when they believe such a move is inevitable, to preserve a company’s valuable cash reserves. Delaying can make it hard to emerge from bankruptcy successfully.
