WILMINGTON, Del. - A federal bankruptcy court judge approved yesterday more than a dozen legal motions filed by Tribune Co. that will allow it to borrow millions, pay thousands of employees and maintain critical vendor and customer contracts.
The motions were designed to keep the media giant operating while it restructures its finances, a process that could take a year or more.
It was the initial court appearance for the Chicago-based parent company of The Baltimore Sun and other newspapers, television stations and media properties across the nation after its Chapter 11 bankruptcy filing Monday, which encompasses 110 of the company's 127 subsidiaries. Tribune, saddled by $12.8 billion in debt following a transaction in which it became privately owned a year ago, is seeking breathing room from its creditors as it retrenches amid a recession and sinking advertising revenue.
Yesterday's federal court approvals will help "preserve the value of the company" and keep it operating "in a very difficult time," Tribune Chief Financial Officer Chandler Bigelow III said in an interview after the three-hour hearing. Tribune properties "are the voice of record in cities like Baltimore," Bigelow said.
Yesterday's rulings will allow Tribune to maintain on an interim basis its centralized cash management system and to continue to pay certain taxes and insurance premiums along with health care benefits, expenses and salaries for its 14,600 full-time employees and 12,000 independent contractors. Health care benefits to roughly 500 terminated employees have been halted.
Judge Kevin J. Carey also allowed Tribune to enter a new credit relationship with Barclays Bank PLC. The bank has agreed to extend Tribune a $50 million letter of credit and to increase an existing loan to $300 million from $225 million to "ensure sufficient liquidity and continuity of operations during the pendency of these Chapter 11 cases," according to a court filing.
A second hearing has been set for Jan. 5.
Tribune attorney James F. Conlan said the operating companies within the parent organization are in a "strikingly good position to reorganize" in large part because their debt is unsecured, meaning it's not tied to any collateral or property that a creditor could lay claim to.
Overall, the company is still profitable, earning $87 million in fiscal year 2007 on revenue of $5.1 billion, most of which came from the company's newspapers. But Bigelow outlined troubling trends in an affidavit filed with the court Monday.
Newspaper advertising revenue, which makes up the bulk of Tribune's income, was down 18 percent - nearly $2 billion - industrywide during the third quarter of 2008. The percentage mirrored the drop through November on Tribune's publishing side, which employs about 12,000 people full-time.
To save money, the company has sold properties, including the New York newspaper Newsday, cut hundreds of positions, redesigned newspapers and reduced their size. Executives also are trying to find a buyer for the Chicago Cubs baseball team, which Tribune owns, and are looking into selling valuable real estate in Chicago and Los Angeles.
Still, "the impact of an unprecedented economic downturn has left them with weak operating results and significant liquidity challenges," a court document states.
Tribune reported $7.6 billion in assets to the court and $13 billion in liabilities. It said its operating cash flow is down 33 percent. Much of the debt came from a complex deal in which Chief Executive Officer Sam Zell took control of Tribune in an $8.2 billion sale late last year.
In an interview with CNBC yesterday, Zell said filing for bankruptcy was a "pre-emptive" move to shore up the company for the future.
Tribune attorneys filed into the Delaware courtroom yesterday morning shortly before the 10:30 hearing, armed with inches-thick documents, a case of bottled water and a dozen boxes of paperwork wheeled in on carts. They were joined before the bench by attorneys from various creditors as well as Joseph McMahon from the U.S. Trustee's Office, which oversees bankruptcy proceedings to ensure legal compliance and just resolution.
At the close of the hearing, Conlan thanked the judge for the relief provided.
"We are here," he had said at the outset, "because our businesses, both the publishing and broadcasting and entertainment sides, depend most on advertising. There has been, to say the least, a precipitous drop."