There is no predetermined outcome for bankrupt Tribune Co. Other than a likely sale of the Chicago Cubs baseball team, the company's future — as well as that of its remaining assets, employees, management, and Sam Zell's continuing leadership — is unclear.
As with other Chapter 11 bankruptcies, among the groups that suffer most are the employees. Tribune's, after enduring previous management's scuffles with the Chandlers, and then witnessing Zell's purchase, have taken it on the chin again. Their ESOP shares are worthless. Their jobs uncertain.
They may wonder who could own the piece of Tribune they work for and, in addition, they could be asking how forgiving Tribune's creditors will be toward the company.
Yet seeking protection from creditors via Chapter 11 bankruptcy, especially in today's sour economic climate, is no longer necessarily a sign of defeat. It's a credible, strategic option for today's managers, who bet that not only will creditors refuse to seek their firm's liquidation but that they themselves will also be in place when the company emerges from Chapter 11.
That said, when Zell took over Tribune in 2007, the firm's bankruptcy might already have been a foregone conclusion. In fact, according to bankruptcy expert Douglas Baird, a University of Chicago law professor, Tribune's finances 14 months ago looked more similar to a corporation that had undergone a 1980s-style leveraged buyout.
"Unlike the ones done in recent years, it was very highly leveraged," he said. "This was an aggressive deal."
Other than Zell's $315 million, there was no other collateral in the buyout, meaning that for Tribune to meet its debt obligations under Zell's ownership, the publisher had to be financially successful, immediately. Instead, revenues and profits went the other direction.
Under Zell's ownership, it's doubtful that Tribune's employees, through the ESOP, had much of a say about the company's direction. Under the Chapter 11 filing, they definitely have no voice in the company's future. Their shares are worthless, even powerless. For that matter, the influence of Tribune's management is potentially diminished.
"The creditors are the shareholders now and in charge of Tribune's future," said Baird. "The judge will be asking them what they want to do.
"The existing managers have not been displaced yet, but whether they (and Zell) have a role going forward will turn in large measure on whether the creditors (and especially Barclay's Bank, Tribune's debtor-in-possession lender) think that they are managing the company well," Baird added.
Barclay's, which is providing Tribune with a $50 million letter of credit, will be one of the first creditors to be paid back should the company come out of Chapter 11.
Other creditors, led by JP Morgan Chase, are owed $12.9 billion, according to Tribune's bankruptcy petition. Tribune claims assets of $7.6 billion.
One of the issues that the creditors committee will need to determine is the economic viability of the assets that compose Tribune.
"That conversation (on economic viability of Tribune as a whole and its parts) is taking place right now," said Baird. "Tribune will likely go on but it may not go on as it was a year ago.
"Assets like the LA Times or WGN (Tribune's Chicago-based radio and television stations) are likely viable and may be set up on their own," he added.
Baird, in fact, is optimistic about Tribune's future.
"Once you take away the debt, they (Tribune and its parts) should be cash flow positive," said Baird, which should guide the creditors toward seeing Tribune successfully through its Chapter 11 proceedings.
"Much of what the creditors decide will be based on how much money they can get paid back."
Real estate options
New York University law Prof. Barry Adler said creditors will also likely consider the future possibility of working with Zell's real estate business.
"There are a number of issues for any creditor to think about when determining the acceptance of a reorganization plan," Adler said.
Whatever steps Tribune and its creditors might take, initial answers clarifying the publisher's reorganization plan won't be forthcoming until April. That's the new deadline U.S. Bankruptcy Judge Kevin Carey set for Tribune to file supporting documentation regarding its bankruptcy plea.