We have spent a lot of time discussing the Tribune Company ESOP buyout and more recently the Tribune Class Action Lawsuit. The Wall Street Journal is reporting that the Tribune Company is preparing for a bankruptcy filing as soon as this week:

In recent days, as Tribune continued talks with lenders to restructure its debt, the newspaper-and-television concern hired Lazard Ltd. as its financial adviser, as well as legal counsel for a possible trip through bankruptcy court, according to people familiar with the matter....Tribune's latest actions underscore the deepening distress enveloping Tribune and other newspaper publishers. Their businesses are being battered by dwindling advertising sales, and they are carrying debt loads that are unmanageable under current market conditions. Insider insiders expect some papers will need to fold or seek protection from creditors to reorganize in coming months.

Tribune has been on wobbly footing since last December, when real-estate mogul Samuel Zell led a debt-backed deal to take the company private. Tribune so far has stayed ahead of its $12 billion in borrowings with the help of asset sales. Now, however, dwindling profits are tightening the noose.

The company's cash flow may not be enough to cover nearly $1 billion in interest payments due this year, and Tribune owes a $512 million debt payment in June.

One of Tribune's most pressing concerns: By the end of the year, the company is likely to be in violation of debt terms that limit borrowings to nine times its adjusted profits. The ratio stood at 8.3 at the end of the second quarter, before Tribune reported an 83% decline in operating profit for the three months ended Sept 28.

The newspaper industry was experiencing problems even before the recent Economic Downturn. While we watch closely to see what happens next with the Tribune ESOP, we also need to watch for Overly Sensational Anti-ESOP Coverage.

How would a bankruptcy filing affect the ESOP? While we don't know for sure, the Antioch Company Bankruptcy Filing is a recent example of an ESOP company that filed a prepackaged reorganization plan with the U.S. Bankruptcy Court.