Chapter 11 could be the name of a hip Manhattan bistro, for all the publishers flocking to bankruptcy protection over the last year. The newest guest is MediaNews Group, publisher of The Denver Post, Oakland Tribune, San Jose Mercury News and Detroit News. Its corporate parent -- Affiliated Media Inc. -- filed for Chapter 11 bankruptcy protection last week with a "pre-packaged" plan approved by lenders.
Under the terms of the prepackaged plan, Affiliated's management will turn over a large portion of its equity in MediaNews Group to lenders, while retaining control of the publisher through special "class A" stock, which empowers them to appoint board members.
In return for the equity, scores of lenders, including Bank of America, will forgive $765 million in debt, leaving Affiliated with $165 million in debt compared to $930 million before.
The deal calls for the divestment of the Scudder family, which will lose the equity built up by Richard Scudder, a long-time partner of MediaNews CEO Dean Singleton. MediaNews will also terminate its partnership and financial relationship with Hearst, with the latter effectively writing off a costly, misguided investment it made in MediaNews back in August 2006.
Under the terms of that earlier deal, Hearst took a $300 million stake in MediaNews by funding the latter's acquisition of former Knight-Ridder properties sold by McClatchy. (MediaNews and Hearst originally aimed for broader cooperation in advertising and circulation, but in 2007 these plans were spiked by the U.S. Department of Justice on antitrust grounds.)
By agreeing to the deal beforehand, the company and its creditors avoid costly, time-consuming court procedures -- or even worse, protracted legal battles of the sort that are currently unfolding in several other big newspaper bankruptcy cases.
The biggest ongoing newspaper bankruptcy is Tribune Co.'s Chapter 11 bankruptcy protection, which celebrated its first anniversary on Dec. 8, two years after the ill-fated deal engineered by Sam Zell to take the company private as an employee-owned business at a cost of $8.8 billion.
In late November, the presiding judge gave Tribune until the end of February to come up with a reorganization plan, but this decision is being challenged by senior creditors led by JPMorgan Chase -- whose move to take control of the company is being challenged, in turn, by junior creditors who allege the whole deal was insolvent from the start and thus a "fraudulent conveyance."
Separately, there seems to be a Knight-Ridder curse in the newspaper business: Philadelphia Newspapers, a subsidiary of Philadelphia Media Holdings, bought The Philadelphia Inquirer and Philadelphia Daily News from McClatchy in a $562 million deal engineered by ad and PR mogul Brian Tierney in 2006. Shortly afterward, the former Knight-Ridder properties saw ad revenues plunge, leading to several rounds of layoffs and finally a declaration of Chapter 11 bankruptcy in February 2009.
Although Tierney was hopeful that the company could exit bankruptcy by the summer, like Tribune Co., his management team has been challenged by creditors for control of the company in a high-profile legal struggle. It brought accusations of corporate espionage through computer hacking and illegal recording of conversations, as well as a reprimand to both sides from the bankruptcy court judge for failing to negotiate in good faith.
Freedom Communications' bankruptcy, which began in September, also seems likely to drag on into '10. The publisher of the Orange County Register initially hoped for a relatively quick resolution by filing a "pre-packaged" bankruptcy plan that would turn over the majority of the company to senior lenders in lieu of $770 million in debt.