Chicago's Two Newspapers Tell Different Bankruptcy Stories

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: Chicago dailies tell different bankruptcy stories : By: Ann Saphir : March 31, 2009 : (Crain's) -- With Sun-Times Media Group's Chapter 11 filing Tuesday, Chicago's two dailies are operating under bankruptcy court protection, but under different circumstances. : Their paths to bankruptcy court are familiar. The print-based franchises of the Chicago Sun-Times and the Chicago Tribune had been eroding for years, as traditional newspaper audiences - and the advertisers that target them - switched to cheaper online alternatives. Then the industry, like many other sectors, got socked by the credit crisis, the recession and the financial turmoil of late last year. : To combat the triple-whammy of declining readership, falling advertising revenue and a lackluster financial climate, both papers cut staff and other costs. It wasn't enough. Tribune Co. filed for bankruptcy protection in December, followed little more than three months later by Sun-Times, the fifth major newspaper publisher in the nation in recent months to seek court protection from its creditors. : That's where the similarities end. : For starters, Sun-Times is losing money - $14 million a quarter on average for the first three quarters of last year. That's eating into a cash cushion that stood on Sept. 30 at just $100 million. A $21-million payment earlier this year to settle a dispute with a Canadian company sucked out more cash. : The publisher, which intends to continue operating, listed $479 million in assets and $801 million in debt in its bankruptcy filing. : Tribune, by contrast, makes money, and plenty of it. A recent bankruptcy filing showed its net cash influx for the month of January was just north of $200 million. Its biggest creditors are J. P. Morgan Chase & Co. and other banks that loaned Sam Zell the $8 billion he needed to take Tribune private in December 2007. While Tribune generates enough money to cover its operational costs, the sudden decline in ad revenue that began shortly after Mr. Zell's purchase meant it no longer had enough to pay the banks, too. : The Sun-Times' bankruptcy filing gives it "breathing room to work on further improving our cost structure and stabilizing our operations," a spokeswoman said. But Sun-Times' deadline is fast approaching, said Chicago-based Fitch Ratings credit analyst Mike Simonton. : "It appears they will burn through their resources by the end of the year," Mr. Simonton said. "Bankruptcy may give them some chance to re-look at some contracts and renegotiate with the unions. However, it's not clear that they could negotiate enough cost flexibility in bankruptcy to become viable over the long term because bankruptcy will not solve their very significant revenue problem." : Sun-Times' biggest creditor is the Internal Revenue Service, which wants to collect more than $600 million in back taxes dating from the days when the media company was run by Conrad Black, who is serving a federal prison sentence for fraud. Sun-Times disputes the bill, and as recently as November said it didn't expect a resolution of that dispute for another 12 months. The amount owed the IRS is listed as "contingent, unliquidated and disputed" in its bankruptcy filing in Delaware Court. : Other creditors on the Sun Times' list highlight the expenses involved in putting out a daily paper. These include three large newsprint providers, owed a collective $3.5 million, and the Tribune, which distributes the Sun-Times. : Jeremy Halbreich, Sun-Times CEO since mid-February, when a shareholder-led revolt replaced most of the company's board, is hopeful a buyer will emerge. The company has retained investment bank Rothschild Inc. to begin the process of selling its assets. But with papers closing and filing for bankruptcy across the nation, Fitch's Mr. Simonton is skeptical. : "Sentiment in the capital markets regarding newspapers has turned very negative," he said. "We're pessimistic about the prospects for selling newspapers in this environment."

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