The pressure on indebted newspaper and other media groups has just stepped up a notch or two.

The Tribune Co, publisher of the Chicago Tribune and Los Angeles Times, has collapsed and sought bankruptcy court protection in the US from its creditors with a massive $US5.3 billion of excess debt, a load that has crushed the once proud group.

And The New York Times has appointed real estate agents to try and raise $US225 million against its headquarters as banks curtail their lending to the sector.

The Tribune‘s collapse is now the biggest failure so far in the current downturn for media groups; it won’t be the last. It is a foretaste of what will happen to highly indebted media groups such as PBL Media in this country which has a similar proportion of debts to assets, even after the latest recapitalisation.

The Tribune‘s announcement came a day after it became known that it had appointed advisers to help move into Chapter 11. The speed of the move came as a surprise, but a look at a simple statement of the company’s financial position makes it clear why the rush to go bust happened.

Tribune was taken private early in 2007 at a cost of $US8.3 billion by Chicago investor and billionaire, Sam Zell. It’s clear he would not provide any more money to the company apart from the minuscule $US315 million he and his interests put into the buyout.

The company listed assets of $US7.6 billion and debt of $US12.9 billion in its Chapter 11 filing. That debt is $US900 million more than the figure at the end of the September quarter, a time when revenues and profits dropped sharply.

The company’s employees now stand to lose a far more substantial slice of their wealth than Zell at the worst possible time through their now worthless employee stock ownership plan (ESOP). The company claimed that shareholders “took $US900 million out of the company” in the buyout. The reality is that money was left in the company as capital and is now lost forever. Mr Zell sold his US office building empire to a private equity group for $US36 billion at the height of the market and then spent that miserly $US315 million buying the Tribune Co.

US analysts who accuse Mr Zell of poor management and foolhardy investment fail to see the real message in this failure.

It’s quite clear that the private equity trick of burdening companies with huge debt loads is a failure and has condemned takeovers around the world to failure. The company’s debt was 10 times its cash flow, which proved too much when revenues fell by around 10% across the group as a whole in the September quarter.

US media reports said that JP Morgan Chase has about $US1.5 billion of debt exposure. Merrill Lynch organised the $1.6 billion bridging loan and big creditors include Deutsche Bank, Kohlberg Kravis Roberts, suppliers of newsprint and television programming and former executives such as Mark Willes, who sold the Times Mirror of Los Angeles to Tribune in 2000.

The Chicago Cubs baseball team was excluded from the filing because of ongoing efforts to sell it. A $US512 million debt payment is due next June but the Financial Times reported that Zell had refused an offer of $US800 million for the baseball team and held out for $US1 billion. The slump in the past two months had killed off those silly prices.

“Factors beyond our control have created a perfect storm,” Chief Executive Officer Sam Zell said, “a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt.”

He’s another businessman and banker to blame outside causes and not his greed in thinly capitalising the company and simply borrowing too much to buy a business whose business model was under attack, even before the deal was started. The credit crunch would not have crippled the company if it hadn’t been loaded up with all that debt from the buyout at the top of the market.

The company has hacked into staff numbers at the various papers and TV stations, paper sizes, sold online assets, sold papers like Newsday, all to no avail.

Tribune also publishes the Baltimore Sun, the Sun Sentinel, the Orlando Sentinel, the Hartford Courant, the Morning Call and the Daily Press. The company’s broadcasting group operates 23 television stations, the WGN America station on national cable, and Chicago’s WGN-AM radio station.

So it must have been a worried New York Times board that decided to try and raise cash by monetising its New York headquarters on the same day that Tribune’s woes caught up with it.

The New York Times is almost broke: it had $US46 million at September 30 in cash reserves and a $US50 million debt to meet from closing a distribution business in the city to save money and cut ongoing cost levels.

The company is looking at a sale and leaseback or to mortgage the building. The mortgage would be the last thing to do as the company already has $US1 billion in debt.