Monday, December 8, 2008

Tribune Bankruptcy Has it All

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Only minutes ago the Tribune filed for bankruptcy. The failure of the Tribune contains within it a multiplicity of elements from the credit crisis, the economy, and the failure of mass media to adequately inform the public of both. According to its filings, the owner of the Chicago Tribune and the Los Angeles Times has $13 billion in debt, but only $7.6 billion in assets. Under such circumstances, it is not surprising that it sought bankruptcy protection, but that it managed to avoid doing so for so long. This leads to the obvious question of just how many other U.S. companies have similar finances that are so precarious that it is inevitable that they will go under? Probably quite a few.

The Tribune was taken private under one of the many private equity deals that took place during the low interest rate fueled credit bubble. Just like subprime borrowers for homes, the company was loaded up with debt that could never be successfully paid back if future circumstances proved to be anything less than rosy. And less than rosy certainly describes the recent history of events impacting the Tribune. The current recession, denied until this month by the U.S. government, has caused a dramatic decline during the last year in all of the Tribune's advertising categories (the source of most income for mass media outlets in the U.S.). The credit crisis makes it impossible for the Tribune, as well as all other companies in similar circumstances, to get out from under the stranglehold of debt that it took on earlier in the decade.

Who are the financial geniuses that are the Tribune's creditors? The usual list of Wall Street's who's who of course. The Tribune's biggest unsecured creditors are its lenders, JPMorgan Chase and Merrill Lynch. Others include Deutsche Bank, New York-based investment management firm Angelo Gordon, hedge fund Highland Capital Management and Goldman Sachs Group. Barclays Capital., which bought key assets from bankrupt Lehman Brothers, is also among Tribune's creditors, with about $142.9 million in interest rate swaps (boy, it was a real bargain picking up those assets). Other outlets in the incestuous mass media business are also on the hook, including Warner Bros. Television, Twentieth Television, Buena Vista Entertainment, and NBC Universal Domestic Television. It can not be ruled out that the Tribune's failure will set off a chain reaction of bankruptcies in the industry.

In a broader sense, there is much more of an object lesson from the Tribune's financial difficulties than that dubious lending practices permeated Wall Street (not exactly a new idea at this point). The lack of responsible reporting on the events that led to the credit crisis, giving an outlet to the Wall Street Pollyanna chorus that denied that the problems were serious and which claimed over and over again that they would soon go away, and not looking into the U.S. government's cover up of the current recession with manipulated economic statistics are how the big news outlet have handled things of late. The tribune itself seems to have been victimized by the web of denial that the U.S. mass media fostered on the American public. Poetic justice perhaps?

NEXT: The Latest Washington Free Lunches

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.