Freedom Communications Holdings, the Orange County, California newspaper publisher, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on September 1, 2009. (You can review a copy of Freedom’s Petition for Bankruptcy here.) According to the Declaration of Freedom’s Chief Financial Officer, the company’s decision to file for bankruptcy was based on several factors, most notably the continual decline of advertising revenues in the newspaper industry and increased competition in web-based advertising.
In September of 2008, Freedom defaulted under is prepetition credit agreement with its lenders. Although the lenders agreed to several loan amendments, Freedom eventually realized that an out-of-court workout would not resolve its financial problems. Besides declining ad revenue, Freedom’s finances were further weakened by the settlement of a class action brought by various newspaper carriers. Pursuant to the terms of the class action settlement, Freedom was obligated to pay over $28 million into an escrow account to fund the settlement. The terms of the settlement agreement provided that the class action settlement would not become final until September 14, 2009. By filing for bankruptcy before September 14th, Freedom contends that the “settlement funds have become property of the chapter 11 estate and, therefore, are subject to immediate return to the [company].” (More information regarding the reasons behind Freedom’s decision to file for bankruptcy are available in Freedom’s Declaration in Support of Chapter 11 Petitions and First Day Pleadings)
Freedom Communications’ origins go back to 1935 when R.C. Hoiles purchased The Orange County Register. From its beginnings through 2000, the company purchased newspapers and other publications in the states of Arizona, California, Colorado, Florida, Illinois, Indiana, Missouri, New Mexico, North Carolina, Ohio and Texas. According to Freedom’s Declaration, as of its petition date, the company owns 90 daily or weekly publications and 30 daily newspapers. In addition to print publications, Freedom also owns eight television stations, most of which are either ABC or CBS affiliates. Including contractors, Freedom employs over 8,200 individuals.
Freedom lists its assets with a book value of $757 million, against liabilities totaling over $1 billion. Included in Freedom’s debt is its credit agreement of approximately $770 million. The remaining $306 million in liabilities includes trade claims, contract claims, lease claims, non qualified retirement plan claims and litigation claims. According to Freedom’s Petition for Bankruptcy, the company’s ten largest unsecured creditors include:
- JP Morgan (unsecured loan) … $770 million
- Class Action Plaintiffs … $28.9 million
- Kingworld Productions, Inc. … $1.5 million
- North Pacific Paper … $1.2 million
- Bowater America, Inc. … $753,326
- Inland Empire Paper … $590,502
- SP Newsprint Co. … $548,151
- Vertis Inc. … $381,416
- Impression Inks West … $374,591
- Abitibi Consolidated Sales … $356,630
This bankruptcy proceeding is before the Honorable Brendan L. Shannon. There has been substantial activity in this case within the first 24 hours of the petition date. Included among the company’s “first day” bankruptcy motions is a motion to pay certain critical vendors, a motion seeking administrative claim status of postpetition goods and a motion to establish procedures for the rejection of executory contracts and leases. (To read a prior post on issues relevant to lease rejection, click here).
Many debtors file for bankruptcy in an effort to sell-off assets under the protection of section 363 of the United States Bankruptcy Code. Freedom states in its Declaration that it filed for bankruptcy in order to restructure its debt under a plan of reorganization. To that end, the company intends to file a disclosure statement and plan of reorganization within 45 days from the date it filed for bankruptcy.