Chicago media giant, Sun-Times Media Group (“Sun-Times” or “Debtors”), filed chapter 11 bankruptcy petitions in the Delaware Bankruptcy Court on March 31, 2009.  In initial pleadings filed with the Bankruptcy Court,  Sun-Times states that it is in a “unique position” for a newspaper company in bankruptcy in that it filed bankruptcy “without any outstanding funded debt.”  Unlike other media companies in bankruptcy, Sun-Times claims to have a “significant pool of unencumbered assets.”  Click here to read Sun-Times’ Declaration in Support of First Day Motions (hereinafter, the “Declaration”).

Debtors’ Businesses

Sun-Times is the parent company for over 100 newspapers, websites and other news media in the Chicago area.  Besides publishing and distributing the Chicago Sun-Times, Debtors own Pioneer Press Group which publishes 39 weekly papers in the Chicago suburbs, the SouthtownStar, the Post-Tribune in Indiana, the Beacon News in Aurora, Illinois and the Napersville Sun in Napersville, Illinois.  On weekdays, the Chicago-Sun Times’ circulation exceeds 319,000 copies, while Debtors’ suburban daily and weekly papers reach 217,000 copies.

In addition to print, Debtors offer news media via the web.  In any given month, 3.4 million visitors will read news and information from  Ad revenue from Debtors’ websites continues to grow.  Despite revenue growth from Internet publications,  Debtors were forced to file bankruptcy in order to respond to what the Debtors refer to as a “deteriorating economic climate,” a drop in print advertising revenue and substantial tax liabilities to the IRS.

Debtors’ Financials

According to its Declaration, Sun-Times generated revenue in 2008 totaling $324 million and operating losses  of $344 million.  Debtors’ largest trade creditors, as listed in the Sun Times bankruptcy petition, include:

  • Catalyst Paper … $1.5 million
  • Alberta Newsprint … $1.1 million
  • Tembec Enterprises … $1.0 million
  • Chicago Tribune Distribution … $615,000
  • United Temps … $370,000
  • Skybridge … $328,000
  • Web Printing Controls … $260,000
  • Classified Plus, Inc. … $211,000
  • Security Professionals, Inc. … $174,000
  • Central Ink Corp. … $162,000

First Steps in Bankruptcy

As is common in Delaware, when a corporate debtor files for bankruptcy, it files various “first day” motions at the same time that it files its petition for bankruptcy.  One of the first motions filed by Sun-Times is its Motion for Authority to Pay Prepetition Claims of Shippers and Lien Claimants (the “Shippers Motion“).  Pursuant to the Shippers Motion,  Debtors rely on third-party carriers and truckers to assist in distributing Debtors’ papers.

At the time Sun-Times filed for bankruptcy,  many of its carriers had outstanding invoices for prior deliveries.  Were Sun-Times not to pay its shippers, its papers would not be distributed to customers.  To avoid this risk, Sun-Times’ Shippers Motion seeks to set aside $800,000 for what it classifies as “shipping claims.”  In essence, the Shippers Motion is a critical vendor motion for the Debtors.  (To read other posts on this blog discussing critical vendor motions, click here.)

Through bankruptcy, Debtors hope to “reset the Company’s cost structure, stabilize operations and consider strategic alternatives, which likely will include commencing a process for a sale of the Company’s assets pursuant to Bankruptcy Code section 363.”  See Declaration at p. 3.  This bankruptcy proceeding is before the Honorable Christopher S. Sontchi.