Excerpt: Tribune Company Seeks Bankruptcy Protection

• The move came less than a year after Samuel Zell, a Chicago real estate tycoon, took control of the Tribune chain and took on most of the $13 billion debt burden that now threatens to cripple it in the face of a sinking economy and a collapse in advertising.
• The recession and the shift of advertising to the Internet have hit newspapers with the sharpest drop in advertising revenue since the Depression — Tribune’s papers were down 19 percent in the third quarter — and some major newspapers have defaulted on debt or been put up for sale, with no takers.
• But Tribune’s problems were made significantly worse by the unusual $8.2 billion deal put together last year by Mr. Zell, which took the company private and nearly tripled its debt load, driving the company deeper into debt than any other major newspaper publisher.
• The bankruptcy came together in just a few days, largely to protect the position of banks that hold the bulk of Tribune’s debt, according to people briefed on the talks between them, who were given anonymity because they were not authorized to discuss the matter publicly.
• The deal created an employee stock ownership plan, which bought all of Tribune’s stock and made the company tax-exempt. That made the employees the titular owners of the company, but they had no say in the matter and have no control over its management.
• Mr. Zell, who put up just $315 million of the purchase price, gained control, and the right to buy as much as 40 percent of Tribune’s stock in the future.
• A note on an internal Tribune Company Web site said, “All ongoing severance payments, deferred compensation and other payments to former employees have been discontinued and will be the subject of later proceedings before the court.” That made it apparent that employees who recently were laid off or took buyouts would join the long list of unsecured creditors.
• In addition to the banks, the major creditors listed in the bankruptcy filing are hedge funds that hold Tribune loans. The largest individual creditor listed is Mark H. Willes, former chief executive of Times Mirror, the Los Angeles-based newspaper company bought by Tribune in 2000, who the filing says is owed $11.2 million in retirement benefits and deferred pay.
• The company had a profit of $37.1 million in the third quarter — down from $216.8 million in the year-earlier quarter — and a $26.2 million loss on its newspapers.

Source: New York Times