December 8, 2008 4:59 PM

Tribune's Chapter 11 Filing and America's Lovable Losers

Posted by Zach Lowe

News broke last night that the Tribune Company hired longtime counsel Sidley Austin for a possible Chapter 11 filing, so this afternoon's news thats Sam Zell's newspaper giant went ahead and filed for bankruptcy comes as less of a shock.

Sidley's James Conlan, co-chair of the firm's bankruptcy and corporate reorganization group, will guide Tribune through its Chapter 11 process. And it will be quite a process. According to the filing (available below), Tribune is carrying about $13 billion in debt compared with $7.6 billion in assets--one of the worst debt-to-assets ratios The Am Law Daily has seen in reviewing bankruptcy filings over the last few months.

According to a company statement and an attached Q-and-A, Tribune does not expect any layoffs at its 23 television stations and 12 newspapers, though its employee stock option program will likely be wiped out.

When we learned of the filing, we wondered what this will mean for Tribune's sale of the Chicago Cubs. Tribune narrowed the list of bidders for the team to three finalists, including groups represented by Paul, Weiss, Rifkind, Wharton & Garrison and Foley & Lardner. (The Cubs were not included in the Chapter 11 filing, but Tribune is their principal owner).

Several bankruptcy experts say the filing may slow the process down a bit but likely won't change it much.

"It adds another level of approval to the process," says Richard Cieri, co-chair of the bankruptcy group at Kirkland & Ellis. "The creditors and the bankruptcy court are going to want to have a say in who buys the team and at what price."

Courts usually order debtors to hold an auction for any assets it seeks to sell, says Timothy Pohl, co-chair of the bankruptcy and restructuring group at Skadden, Arps, Slate, Meagher & Flom.

Does that mean rejected bidders like Mark Cuban, owner of the Dallas Mavericks (he's also currently facing insider trading charges) can jump back into the process and outbid the finalists? Probably not, say Pohl and others. Three-quarters of Major League Baseball's team owners have to approve the sale of any team to a new owner, and it's widely assumed they would not let the outspoken Cuban into their club--with or without the new alleged insider trading baggage. Knowing that, a bankruptcy judge will consider the approval of MLB's ownership as a condition of any sale.

The court could also assume Tribune has done a thorough vetting job on Cubs bidders and simply accept Tribune's decision on a final sale, Pohl says.

"It's not uncommon at all for companies in Chapter 11 to sell some of their assets," he says.

There's precedent in the sports world. In the past two decades, baseball's Baltimore Orioles and hockey's Buffalo Sabres and Ottawa Senators have all been sold during bankruptcy proceedings.  The process was a bit slower than originally expected, but the transactions eventually went through.

Download Tribune Bankruptcy.pdf

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