Tribune files for bankruptcy protection

— -- In yet another dire sign for the newspaper industry, the Tribune Co. filed for Chapter 11 bankruptcy protection on Monday.

Tribune — the nation's second-largest newspaper company and owner of eight metropolitan daily papers including the Chicago Tribune and the Los Angeles Times — is wrangling with "dramatic" declines in ad revenue and massive debt.

The bulk of Tribune's $12 billion in current debt came when it went private last year in a complicated employee-owned structure. That deal was led by real estate tycoon Sam Zell, who is CEO.

Zell said in a statement that "a precipitous decline in revenue and a tough economy coupled with a credit crisis" made it "extremely difficult to support our debt."

Before Tribune went private, it had about $4.8 billion in debt. The company borrowed an additional $8.2 billion to buy back its publicly traded stock.

Given that debt, and the bankruptcy filing, Fitch Ratings downgraded Tribune's credit rating to a D on Monday. "Its debts exceed the value of its assets," says Fitch analyst Mike Simonton. "We think unsecured bondholders will get zero recovery, and even first-priority debt holders will only get 30% to 50% recovery."

Zell has tried to curtail some of the 161-year-old company's problems by cutting jobs and selling assets.

Last summer, it sold Newsday newspaper in New York to Cablevision for $650 million. Tribune also sold 10% of its stake in to Gannett for $135 million. Gannett, which owns USA TODAY and already had a stake in, is the nation's largest newspaper publisher.

Tribune also owns and operates 23 major-market TV stations, as well as the Chicago Cubs baseball team. The Cubs, which it is trying to sell, are not included in the bankruptcy filing.

The newspapers and TV stations "will continue to operate" during the restructuring, Tribune said.

"Our plan is to operate in the normal course for our readers, viewers, advertisers and communities we serve," it said.

While it's a tough time for almost every major media company, newspapers have felt the loss of circulation and ad revenue as they grapple with a host of new online competitors.

"The whole newspaper industry has been hit hard," says independent newspaper analyst John Morton.

Among the problems: "The three major sources of (newspaper) classified advertising are automotive, real estate and job formation — and all three of those have been in the tank since last year," he says.

Ad spending in local newspapers is expected to decline 12% to $26 billion in 2009, according to a new forecast out on Monday from Robert Coen, director of forecasting at media-buying company Magna.

Contributing: David Lieberman