• by David Goetzl  @dgoetzl, July 22, 2009

Gray Television is set to begin managing seven stations owned by Young Broadcasting through a plan that received preliminary court approval Wednesday. The arrangement would also have Young continuing to operate its remaining three stations -- in San Francisco, Knoxville, Tenn., and Lansing, Mich. -- while Vincent Young will remain its chairman-CEO.

The moves are part of a reorganization plan submitted by Young to a federal bankruptcy court in New York. Young filed for Chapter 11 protection in February and its collection of bankers will now take control of the company for $220 million under a deal that still needs FCC approval.

That approval could take months, but sometime this fall, Gray is set to take over operations of the ABC affiliates in Nashville, Albany, N.Y. and Richmond, Va., along with four other network affiliates in smaller markets. Gray will receive an annual management fee as well as other bonuses and incentives.

Gray likes stations in markets with major universities, but since it already owns affiliates in Knoxville and Lansing, Young will continue to run its stations there. Young will also operate its financially troubled KRON, the MyNetworkTV station in San Francisco it purchased almost a decade ago for $823 million.

Young's bankers, with Wachovia acting at the point in court, will keep Vincent Young as chairman-CEO, but will restructure the board of directors. Still, Young will maintain control.

The current eight-member board will be reduced to five, with Vincent Young at the head. The other members will include two from Young's current board, and two selected by the bankers, but approved by Young's current board.

Also, the bankers will sign Young's three top executives -- Vincent Young, President Deborah McDermott and CFO James Morgan -- to new contracts and keep them in their roles. Former employees will continue to receive full severance payments. Some unsecured creditors will receive 10 cents for every dollar owed.

Young's bankers agreed to put up $200 million and assume about $20 million in expenses to gain control. Two other unsuccessful bidders offered $120 million for Young's 10 stations, but both refused to increase their bids.

Young has $348 million in debt that will be wiped out as part of the bankruptcy proceedings. It has $18.6 million in cash on hand, and the bankers have agreed to fund shortfalls.

Among Young's hurdles are a limp advertising environment and the troubled KRON, which has been a drag on profits. The company has tried, unsuccessfully, to unload it.

Vincent Young said after Wednesday's court proceedings that the deal with Gray should help both companies. Gray's management and strong infrastructure should benefit Young, while he said Young has been successful at developing new sources of local ad dollars, where it could help Gray "get to where they need to be."