• by Erik Sass  @eriksass1, March 30, 2010

What is the price of failure? $138.2 million.

That's according to the Chicago Tribune, which tallied up the legal fees generated by owner Tribune Co.'s protracted, contentious Chapter 11 bankruptcy protection. This equals a whopping one-quarter of the ailing media conglomerate's cash flow in 2009 -- money that otherwise might have gone to paying down Tribune's vast $11 billion debt, including $8.5 billion assumed in the transaction to take it private as an employee-owned company in 2007.

The newspaper reports that Tribune Co.'s top lawyers are billing the company at rates of $925 to $955 per hour -- and they are assisted by an army of junior lawyers and paralegals.

According to the same article, one Chicago law firm -- Sidley Austin -- has 160 people working on the case, who have collectively billed 4.6 years of time at an average hourly rate of $500. That equals a total $20.1 million for that law firm alone. Among other things, the $138 million total includes $1.2 million billed for the time spent preparing the bills.

The bonanza of legal fees for bankruptcy lawyers is yet another drain on the already diminished revenues of Tribune Co. Like other big newspaper publishers, it saw print advertising revenues collapse over the last couple of years. The Tribune bankruptcy is also a cautionary tale that Chapter 11 bankruptcy protection doesn't necessarily provide the financial respite needed to put a company on sound business footing again -- especially if the bankruptcy is contested.

In February, junior unsecured creditors in the Tribune case filed a motion in bankruptcy court alleging that the multibillion-dollar deal to take Tribune Co. private in 2007 was insolvent from the start -- and proceeded despite the fact that relevant parties knew this to be the case.

That would make the transaction a "fraudulent conveyance" and effectively cancel current bankruptcy proceedings -- if the court agrees with these charges.

The move is a bid by the junior creditors to recover more money than they would get from the current bankruptcy plan filed by Tribune Co. management, with support from senior creditors. The document asserting fraudulent conveyance was filed by Wilmington Trust on behalf of a group of junior creditors who stand to recover virtually nothing from the Tribune bankruptcy as it is currently planned.