The Wall Street Journal reports today that Chicago-based Tribune Company, owner of the Chicago Tribune and the Los Angeles Times, six other daily newspapers, a number of television stations, plus the Chicago Cubs baseball team, may seek Chapter 11 Bankruptcy protection.
What’s surprising is the Lazard, which is also handling the sale of the Chicago Sun-Times and Sun-Times Holdings, has apparently, according to the Journal, been retained to find a buyer for the assets of the Tribune Company, if not the entire company itself.
It begs the question whether Lazard has a conflict of interest because they’re working for two companies that compete with one another in Chicago.
Tribune Company went private about a year ago when real estate mogul Sam Zell purchased the company. The tragedy, however, is that instead of having the money to outright buy the company, he put it into debt, to about the tune of $13 billion.
Given the size of the company, most days a debt of that size might have been easy to handle. But before the deal was even closed, Zell’s bankers were concerned about the deal because Tribune’s revenue stream was declining.
There are no asset sales on the horizon for Tribune Company – which kept the bankers at bay – so, as the Journal reports:
“The company's cash flow may not be enough to cover nearly $1 billion in interest payments due this year, and Tribune owes a $512 million debt payment in June.
”One of Tribune's most pressing concerns: The company is likely to be in violation of debt terms that limit borrowings at the end of the year to nine times its adjusted profits. The ratio stood at 8.3 at the end of the second quarter, before Tribune reported an 83% decline in operating profit for the three months ended Sept 28.”
It was reported about two months ago that the Cubs, coming off of a good season, plus an appearance (albeit brief) in the playoffs, could command a price in the $800 million range. If Tribune Company goes Chapter 11, it’s difficult to say if such a reported price would hold up.
In addition, two years ago, David Geffen, significant player in Hollywood, was offering $2 billion for the Los Angeles Times. Here, again, if Tribune goes Chapter 11, it’s questionable if that price will hold. (Even if Tribune wasn’t seeking Chapter 11 protection, it’s hard to say if, given the state of the U.S. newspaper industry, that price would hold up today.)
McClatchy, based in Sacramento, owner of a number of daily newspapers, recently restructured its debt terms. Tribune may be able to do the same and avoid Chapter 11.