Sun's parent files for protection from creditors

The Baltimore Sun

Baltimore Sun parent Tribune Co. filed for voluntary bankruptcy protection under Chapter 11 yesterday, in a bid to restructure crippling debt that the company said became unsustainable in a recession and the worst advertising climate in decades.

The media giant, owner of The Sun and community newspapers that make up the Baltimore Sun Media Group, said it has sufficient cash to keep operating its group of newspapers and television stations, among them the Chicago Tribune and the Los Angeles Times.

Tribune also owns the Chicago Cubs baseball team, which is for sale.

Baltimore Sun Publisher Timothy E. Ryan said in a letter to readers that there will be no interruption to its print publications or Web sites. In a memo to employees, Ryan said, "We will continue to serve the Baltimore market as we have for the past 171 years."

Sam Zell, chairman and chief executive of Tribune Co., said the bankruptcy filing was "about relieving the pressure on the company from too much debt."

"We believe we will be able to operate normally," Zell said in a conference call yesterday with Tribune reporters. "By virtue of the filing today, we will suspend making interest payments, which should give us added flexibility in order to continue moving forward."

In its filing yesterday in U.S. Bankruptcy Court in Delaware, Tribune listed assets of $7.6 billion and liabilities of nearly $13 billion owed to more than 1,000 creditors, including lender JP Morgan Chase Bank, which is the administrator for $8.5 billion in debt. Other unsecured creditors include Merrill Lynch Capital Corp., Warner Bros. Television and Paramount Pictures Corp.

Much of the debt came from a complex deal in which Zell took control of Tribune in an $8.2 billion sale a year ago. As a result of that deal Tribune, which has about 20,000 employees, is now owned by workers through an employee stock ownership plan.

Tribune and other media companies, long battling declining circulation and readership lost to online competitors, have struggled with steep advertising drops amid the faltering economy. The worsening credit crunch and expectations of a prolonged recession have added new layers of uncertainty.

Kelly McBride, an ethics group leader with the Poynter Institute, said that Tribune's bankruptcy is a sign of the financial turmoil the industry is facing and that more newspaper bankruptcies could be coming.

But that doesn't mean newspapers are in danger of dying altogether, she said. The most vulnerable newspapers are those with circulation of less than 50,000, with smaller owners and large amounts of debt.

"To naturally leap to the conclusion that this is the beginning of the end of newspapers is a mistake," McBride said. "I can't imagine that in [Tribune] markets that the newspapers themselves would cease to publish. They may publish under a different owner. They may publish under different financial structures. These are some pretty large markets."

Since Zell took the helm of Tribune Co. in December 2007, the economy has deteriorated. By March, the new Tribune executives were re-evaluating original plans to keep all the media company's assets. In June, the company began redesigning all of its newspapers to reduce them in size and staff. The Baltimore Sun Media Group eliminated 100 jobs companywide in early August. And more recently, plans to sell the Cubs have been delayed by the credit crunch.

Yesterday's filing did not include the Cubs franchise or Wrigley Field. But Zell indicated that the planned sale of the Cubs is nearing completion. Any proceeds ultimately would be used to pay creditors, Zell said.

Thomas Kunkel, the former dean of the University of Maryland Philip Merrill College of Journalism and a newspaper veteran who is now the president of St. Norbert College in Wisconsin, said the bankruptcy was the largest he could remember for a newspaper chain.

"This is certainly going to be unprecedented in terms of its scope," he said, "and unprecedented in terms of whatever the ripple effects could be in the industry."

Mayor Sheila Dixon said yesterday that she has read The Baltimore Sun her entire life.

"For the sake of the people in Baltimore, I hope this does not mean the end of the paper," Dixon said in an e-mailed statement.

Unlike a Chapter 7 bankruptcy filing, where a business liquidates its assets, distributes the proceeds and shuts down, Chapter 11 protection is designed to allow a company to restructure its debt.

It typically provides an opportunity to get out of contracts without suffering hefty consequences, cut costs and continue operating. Key executives retain their positions, but creditors are put under a sort of automatic stay in terms of enforcing their claims.

Companies often emerge from bankruptcy proceedings with lower debt and renewed profits. Perhaps the best known examples are airlines such as United and Delta, which both sought court protection from creditors in recent years.

United entered Chapter 11 proceedings in 2002, but soaring fuel prices and other challenges delayed its emergence until 2006. Delta filed for bankruptcy protection in 2005 and emerged in 2007.

Bankruptcy attorneys characterized Tribune's reorganization filing yesterday as a "mega-case" in the same stratosphere as U.S. Airways, which reported $8.8 billion in assets and $8.7 billion in debts in its 2004 filing.

They said the bankruptcy will likely take years, and tens of millions of dollars, to litigate.

"This is going to be a large one," said Troy Swanson, a bankruptcy attorney based in Bel Air. "You're talking about a [reorganization] plan that's going to look like the size of the New York phone book."

Many companies do not emerge freestanding from bankruptcy court but rather sell their businesses to outside buyers. For example, much of telecommunications giant WorldCom ended up being owned by Verizon after WorldCom's time in bankruptcy court.

Such filings are increasingly relying on the sale of some assets to raise cash, lawyers said. In addition to terminating some of its pricier leases and bailing on costly contracts with vendors, Tribune will likely look to unload some of its properties.

"One of the fastest ways to come up with a pile of money is to sell something," said Larry Katz, an attorney with Venable LLP and the immediate past president of the Bankruptcy Bar Association for the District of Maryland. "I would be not at all surprised if one of the first steps taken by the company is the sale of some very significant assets."

In the conference call with Tribune reporters, Zell deflected questions about potential sales or additional layoffs.

"To the extent that there are operational decisions made, those are operational decisions that would have been made with or without the filing," he said. "There is no connection between layoffs and asset sales and the filing."

Union contracts could also be renegotiated or canceled altogether in such circumstances, and employee pension plans could be at risk, lawyers said. A statement from Tribune said existing pension benefits are unaffected by the filing in general. As part of its reorganization, U.S. Airways killed three pension plans that covered 53,000 employees to save the company $1 billion over three years.

In motion filings yesterday, Tribune Co. asked the courts for permission to pay employee salaries.Cet Parks, executive director of the Washington/Baltimore Newspaper Guild that represents 300 of The Baltimore Sun's 1,300 workers, said he was surprised at the timing of a bankruptcy but hoped it could open the door to new owners.

"We hope this will be a springboard for local ownership," he said.

One local investment group led by Theodore G. Venetoulis, a publisher and former Baltimore County executive, has expressed interest in the paper.

"We have to ... let this thing sort itself out," Venetoulis said yesterday.

Little should change operationally for Tribune's newspapers during the proceedings, McBride said.

"It could be better because they're insulated from making the debt payment until something is resolved," she said. "They could get some reprieve from the day-to-day trying to squeeze blood from the stone. I don't think it will necessarily be any worse for the individual properties day-to-day as they go through bankruptcy."

When he was asked whether it was likely that bankers and bondholders would agree to restructure debt without further cuts in operational expenses, Zell said Tribune's bankruptcy differs from other Chapter 11 filings in that the company still has positive cash flow, before debt service.

Kunkel, of St. Norbert College, said Tribune's bankruptcy filing could ease the pressure on newspapers to keep trying to achieve high profits that had begun to become expected from Wall Street.

"It could be that for these papers, the pressure will ease up enough so that just being profitable is enough," Kunkel said. "You might be able to buy enough time to make the transition to what the digital future is. If they could just get a little breathing room, they might just bridge the transition. Because these newspapers do have so many strengths."

Baltimore Sun writers Jay Hancock and Annie Linskey contributed to this article.


* The Sun and Tribune's seven other newspapers and 23 television stations will run as normal while restructuring.

* Litigation could take years, cost tens of millions of dollars, legal observers say.

* Nearly $13 billion is owed to 1,000-plus creditors, who must approve any deal.

Sources: The companies; court documents


Letter from Baltimore Sun publisher. PG 3

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