Monday, December 8, 2008

Sam Zell's memo to Tribune Company employees

Los Angeles Times

On Monday Dec. 8, 2008, Zell announced that Tribune Company has sought bankruptcy court protection from creditors amid declines in advertising sales.

Here is his memo to the Tribune staff:


We just announced that Tribune is restructuring its debt under Chapter 11 protection. I'm sure you saw the speculative coverage last night and this morning. I would have preferred everyone get the news from me first, but since our debt is publicly traded, we had to keep this decision confidential until we had a formal board decision. The Cubs franchise is not part of the filing.

Most importantly, I want to stress that we will continue to operate our business as usual. That includes meeting payroll and covering benefits (such as healthcare, disability and others), and paying vendors for all goods and services they provide to us going forward.

As is routine with Chapter 11 filings, we have filed "First-Day Motions" to get court approval on these and many other programs that are essential to continuing our businesses without disruption. We expect to get approval on these motions within the next few days.

You are also most likely wondering about the other aspects of your compensation. The 401(k) is unaffected by the filing, and in general, the existing benefits in the pension and cash balance plans are also unaffected by the filing. The ESOP is part of the ownership structure, so its value and role long-term will be determined in the restructuring. We believe the structure is a valuable asset to the company and that there are strong reasons to preserve it.

So, how did we get here? It has been, to say the least, the perfect storm. A precipitous decline in revenue and a tough economy have coupled with a credit crisis, making it extremely difficult to support our debt. All of our major advertising categories have been dramatically impacted.

By restructuring our debt, we will reduce the pressure on the company's operating businesses, enabling us to pursue our vision of creating a sustainable, cutting-edge media company that is valued by our readers, viewers, and advertisers, and that plays a vital role in the communities we serve.

This filing should not impact the way you do your jobs on a day-to-day basis. We will continue to operate responsibly in a challenging environment – aggressively managing costs and maximizing revenue opportunities. These are all things we would do whether or not we were restructuring our debt.

Our challenges are consistent with those facing all media companies, and an increasing number of companies across a variety of industries today. The reality is that we – along with the rest of the country – have very little visibility on where the economy is headed and how our businesses will perform given the recession.

The good news is that we have great brands, and we produce great products every day. It's up to all of us to continue to focus on what it is we do best.

As your Chairman and CEO, I will continue to be actively engaged in the business and I remain committed to the company, to you and to our lenders. Randy, Gerry and the rest of the management team are equally dedicated to moving this company forward.

I'm sure you have a lot of questions that this email doesn't cover. I encourage you to visit TribLink where we've posted some anticipated Q&A, or call the toll-free number we've established – 888-287-7568. We'll also have information posted on But, recognize that there is quite a bit we don't know – or that we cannot confirm – at this point.

I am proud of the work we have done at Tribune in the last year. I've seen strong determination to take hold of this company and put it on a new course. As a result, we've reduced costs, gained market share, and laid the groundwork for creating a new business model out of traditional media. This restructuring will give us the time we need to build that model, to secure sustainable and growing cash flow, and to achieve the success the talented partners in this company deserve.



Tribune bankruptcy may trigger $1.5 bln in CDS payments

Reporting by Karen Brettell, Reuters

NEW YORK (Reuters) - Payments of around $1.5 billion will likely need to be made to settle credit default swaps on Tribune Co's debt, after the newspaper publisher on Monday filed for bankruptcy protection.

The privately held publisher of the Chicago Tribune and Los Angeles Times, which took on about $13 billion of debt when it went private last year under a deal led by real estate mogul Sam Zell, filed for bankruptcy after struggling with its heavy debt load.

Around $20.5 billion of credit default swaps on Tribune's debt are outstanding, though this number falls to around $1.5 billion after netting down redundant exposures, according to data by the Depository Trust and Clearing Corp, which confirms the majority of credit derivative trades.

Credit default swaps are used to protect against a borrower defaulting on their debt, or to speculate on their credit quality.

When a borrower defaults protection buyers are paid the full amount insured in return for the defaulted debt, or cash equivalents.

Tribune's bonds traded between 3 and 6 cents on the dollar on Monday, indicating protection sellers are unlikely to recover much from the contracts.

Tribune had $11 billion in outstanding long term debt as of Sept 28, according to a regulatory filing.


Tribune files for Chapter 11 bankruptcy

By David B. Wilkerson, MarketWatch

CHICAGO (MarketWatch) -- Tribune Co. said Monday that it filed for Chapter 11 bankruptcy protection to restructure its nearly $13 billion debt load, a move that dramatically underscores the dire circumstances clouding the near-term future of the newspaper industry.

The owner of the Chicago Tribune, founded in 1847, said that its operations would continue during the restructuring, allowing it to keep running its newspapers, television stations and interactive properties, and that it currently has enough cash to fund them.

The Chicago Cubs franchise, including Wrigley Field, is not included in the Chapter 11 filing, Tribune added. The company will continue to look for ways to "monetize the Cubs and its related assets."

Real-estate investor Sam Zell, who acquired Tribune last December, commented that "factors beyond our control have created a perfect storm -- a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt."

The financing of Zell's $8.2 billion transaction involved the creation of an employee stock program that incurred a significant amount of debt.

Prior to Monday's filing, there had been concerns that the company might not be able to come up with more than $1 billion in interest payments due in 2008, and could default on a payment of more than $500 million due by June.

Last month, Tribune reported a third-quarter loss of $121.6 million. A year earlier, it had posted earnings of $152.8 million. Advertising plunged 19% at its newspapers, which include the Chicago Tribune, the Los Angeles Times and the Baltimore Sun.
At the Times, which has been hemorrhaging readers and advertisers in recent years, an employee who did not want to be identified said the staff already has endured severe cuts and that company executives are saying no further reductions are planned.

The bankruptcy filing didn't come as a surprise to the staff, since the company has said it needs to restructure its debt, the individual said, but employees are still sorting out what it will mean.

To pay down its debt, Tribune has declared itself willing to sell many of its assets. The company earlier this year agreed to sell a 97% stake in Long Island, N.Y., newspaper Newsday to Cablevision Systems Corp. (CVC:Cablevision Systems Corporation

Writing on the wall

For several years, newspapers have seen precipitous declines in print-advertising revenue, as traditionally heavy buyers of print ads such as automakers and airlines have experienced problems of their own.

Classified advertising, which has long been the main source of income for newspapers, has declined calamitously in step with the real-estate downturn, decreased demand for help-wanted ads and the defection of many transactions to Craigslist and other competing Web-based services.

In 2005, angry newspaper-company shareholders began to make vocal demands for spin-offs or sales. During the summer of 2006, the Chandler Trusts, Tribune's largest shareholder, demanded that the company make a major shift to revive its stock, which had lost nearly half its value since early 2004. Within weeks, the company said that it would pursue strategic alternatives, including a possible sale of some or all of the company's operations.

David B. Wilkerson is a reporter for MarketWatch in Chicago.

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