Tribune's Victims

Updated from an earlier version: 

The idea of a Chapter 11 bankruptcy filing is to give a company breathing room to reorganize its affairs, work out more favorable terms with its bankers and creditors, and generally protect as many of the company's various constituencies as possible.

But as details of the Tribune Co. Chapter 11 filing seep out, it's clear that some of Tribune's most vulnerable constituencies–its employees and certain former employees–are going to be among the biggest losers.

It already seemed clear that employees are likely to lose this year's contributions to the employee stock ownership plan that owns Tribune these days–aka their retirement accounts–because shareholders in a bankrupt company are last in line to get anything from a Chapter 11 reorganization. (If it's any solace, CEO Sam Zell is probably out his $315 million personal investment, too. Or maybe not.) The status of the ESOP hasn't been confirmed, but it doesn't look good.

Even more troubling may be the status of those employees who left the company over the past year in the waves of buyouts that Tribune did to reduce employment. According to The New York Times and The Washington Post, an internal memo indicates that those ex-employees still receiving buyout payments are now creditors of the company and will have to wait to get paid–if they get paid at all. (Current employees, fortunately, are the most protected by law in a bankruptcy reorganization.)

From Frank Ahrens' story in The Washington Post:

Those who did not take their severance in a lump sum could be hurt by the bankruptcy. "All ongoing severance payments, deferred compensation and other payments to former employees have been discontinued and will be the subject of later proceedings before the [bankruptcy] court," stated an internal Tribune document sent to employees yesterday.

That doesn't sound good. There's nothing particularly unusual about it–that's how former employees due money are treated in bankruptcy, under the law. But nonetheless, it's undoubtedly a shock to many people who took early-retirement packages from Tribune over the past few months and didn't take lump sum payments. (It also apparently affects some former Los Angeles Times executives who had cushy deferred compensation due from Tribune dating back to its acquisition of Times-Mirror a few years ago. Oops!)

I'm sure we'll find out more about this in the days to come. And with Tribune's debt ($12.9 billion) exceeding its assets ($7.6 billion, and in this economy, that may be an optimistic guess) by more than $5 billion, there's likely to be still more pain to come as the company slashes even more to try to regain its financial equilibrium.

More on this angle from The New York Times.

Comments

[Rocky]

So Tribune offered departing employees the choice between a lump sum and severance paid out over time and people chose not to go with the lump sum? Geez, journalists are bad with money.