My experiences with Chapter 11 Bankruptcy

Debtor in Possession are three words you never want to see on your paycheck. But if you’re a Tribune Company employee, those are words you’ll soon see emblazoned across your paycheck. It’s warning to the banks: The company you work for is in Chapter 11Bankruptcy.

It also tells the banks that the check is good because, should it bounce, the check issuer, in this case Tribune Company, very likely risks going into Chapter 7 Bankruptcy, which involves closing up shop and liquidating whatever assets remain. And if there’s anything Sam Zell and his bankers probably don’t want right now, it’s a Chapter 7 filing.

I still remember those three words being on every check United Press International issued. It gave every bank cashier and/or clerk I dealt with some pause before cashing a check that had been issued to me by the company.

I experienced Chapter 11 more than 20 years ago when I worked for UPI. It was one of the most turbulent experiences in my professional career. In Chapter 11, you soon learn that there are no sacred cows and that everyone is dispensable.

In UPI’s case, the revenue stream, shrinking as it was, could no longer keep up with the company’s cost structure. If UPI’s management wanted the company to continue, it needed to borrow money. But to do so, the banks wanted to protect the money they were lending. As a result, UPI filed for Chapter 11, where it remained for about 18 months until it was purchased by a newspaper publisher from Mexico, Mario Vazquez-Rana.

Mr. Zell can say what he wants about being in firm control of Tribune, but the fact is the banks, especially J.P. Morgan Chase, are running the show. They may not have their own people sitting in the executives suite today, but they’ll be there soon. And they’ll start appointing their own people into Tribune’s management. People they can trust.

The same thing happened at UPI. Suddenly people with no experience in the media business, but plenty on Wall Street, wound up in charge. Each of them had to come up to speed on the company – its nuances, history and competition, employees and clients – so they understood the situation they faced. Some were successful at this; others were complete disasters.

The bankers have one mission – get paid. Mr. Zell can say he wants to keep the company intact, but that’s the bankers’ last and least concern. They want their money – and they’ll do what they need to do to get it, especially given today’s economic and financial climate.

I count my lucky stars (if I can use that phrase) that I experienced this when I was months shy of my 23rd birthday. The many UPI people who were older than me, laden with kids, college payments and mortgages, didn’t always hold up so well. Some left UPI for greener pastures. Some divorced; and some just hunkered down and did their job.

Chapter 11 is exhausting. It challenges you mentally – how do you look out for Number 1; pay your bills; handle your unpaid expense account; make the business you run work; keep people motivated; handle a spouse’s and/or family members (nagging) questions; plan for the future – and it’s also physically challenging. You feel beat up and, at times, powerless and helpless.

It can also bring about a gallows humor. At UPI, in Dallas, where I worked when the company entered into Chapter 11, a bank, right next to our office, where many of us had checking accounts, stopped honoring our paychecks. They told us we had to wait three to five days for the checks to clear before we could access the money. You can imagine the uproar that created.

So one of my colleagues, Dan Dalton, suggested we rent a school bus, pick up the homeless around Dallas, give each of them UPI credentials and then send them into the bank, telling them that the bank was holding a party in their honor. That would show the bastards, said Dan.

Tragically, we didn’t follow up on that idea. Reflecting back on that day now, we should have. It would have been fun.

My biggest challenge, at the time, was paying $1,500.00 in charges I’d racked up on my American Express card, which I’d used on the many sales trips I’d made. I still remember talking to some nice man at American Express, explaining that I couldn’t pay the bill. I later borrowed money from my dad so I could pay the tab.

And, as I recall, I bounced one or two rent checks as a result of UPI’s Chapter 11 filing because there were some problems with payroll.

Hopefully, the many things I went through at UPI will not happen to Tribune employees.

I feel awful for the many talented professionals working at Tribune who now have to deal with this. Sam Zell won’t suffer. But the many employees who’ve staked their lives and careers on Tribune will likely find that they’re bearing the brunt of this situation. That’s what makes it completely unfair.

Chapter 11 bankruptcy for Tribune?

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.