WILMINGTON, Del. — A federal judge Tuesday approved Freedom Communication Inc.’s reorganization plan, giving a green light for the company to emerge from bankruptcy by the end of this month.
The court action gets the Irvine, California-based media company and parent of The Orange County (Calif.) Register out from under 58 percent of its debt — from $775 million to $325 million. The company’s unsecured creditors will share in $32.2 million compared with the $5 million Freedom originally offered.
“I’m a little relieved that it’s all done,” said Freedom Chief Financial Officer Mark McEachen, who attended the less than 30-minute hearing. “Now we’re on to the business of running the business so we can get this distraction behind us.”
Freedom interim Chief Executive Officer Burl Osborne said the bankruptcy “will give the company a new balance sheet, a fresh start, if you will.”
The company’s plan calls for it to more than double its pretax earnings to $98 million within four years. Newspaper analysts predicted that the new investors/owners of the company are likely to hold on to it for a minimum of two years and as much as six or seven as they wait for the market for media concerns to improve.
“This is graduation day,” federal Bankruptcy Court Judge Brendan Shannon said moments before he approved Freedom’s plan. “It is not lost upon the court that this was a significantly contested matter.” Freedom filed for bankruptcy on Sept. 1, 2009 and after some contentious negotiations with its unsecured creditors, reached an agreement that led to an overwhelmingly positive vote for its reorganization plan. The exact vote of the creditors was not disclosed at the hearing.
The company will emerge from bankruptcy with Osborne at the helm and a new board of directors that for the first time will not include a member of the founding Hoiles family. In 1935, R.C. Hoiles bought what is now The Orange County (Calif.) Register as a platform for his libertarian views. His flagship paper, it formed the core of media group that later became Freedom Communications.
The new board will include Osborne and five members with broad experience in publishing, television and digital media.
McEachen said there is a “little bit of sadness in that we’re leaving behind the Hoiles family legacy so we have to be very mindful of that.” But, he added, this new start is “going to give the company some breathing room to continue to operate in this brave new world and figure out how we can continue to be relevant to our readers and customers.”
So far only one investor Angelo Gordon & Co., a New York private equity firm that has bought the debt of other media companies in bankruptcy, has been publicly named. McEachen said by the time the company emerges from bankruptcy, Freedom will make public the names of the other investors.
McEachen did say that “a great deal of our debt has traded into the hands of financial players who focus on media space. They have invested hundreds of millions of dollars in our properties,” something he called a vote of confidence for what Freedom is doing.
In addition to its daily newspapers, Freedom owns 70 other-format publications and eight television stations.
Before Freedom can emerge from bankruptcy, the company needs to finalize the paperwork for $25 million in exit financing that will be provided by General Electric Capital Corp. and get the Federal Communications Commission approval of a temporary trust for the licenses for the television stations.
“The story is the same for all the newspaper companies,” said Ken Doctor, a newspaper analyst at Outsell Inc. in Burlingame, Calif. “They are trying to get down to the level where they can operate with some stability and some profitability.”
Doctor said Freedom was not able to jettison as much of its debt as other media companies that have gone through bankruptcies. “Thirteen newspaper companies have gone through bankruptcy,” he said, and most ended up with 20-25 percent of their debt remaining. Freedom, he said, “is ending up with less relief than other companies.”
McEachen rejected the comparison with other media companies, saying that Freedom’s diversification and cash flow situation make it able to handle the amount of debt it will have as it exits bankruptcy.
“I can tell you we believe the cash flows generated by this company are adequate to service that debt and give us the financial resources to continue to develop, improve and grow,” Osborne said.
In recent weeks, Freedom Communication’s debt has been selling for about 70 cents on the dollar compared with 20 cents last year.
“There’s confidence in those numbers that it (Freedom) can meet its obligations” going forward, Doctor said.
Veteran newspaper analyst John Morton said the company’s future will “depend on how well the newspaper business recovers from the recession. That’s not completely clear.”
In Freedom’s favor, Morton said, is that most of the company’s 33 daily newspapers are in small-town markets that have been less affected by the recession and will also probably be less affected going forward by the competition from the Internet.
But newspapers like The Orange County (Calif.) Register, which are in larger competitive markets, will continue to struggle, he said.
Osborne believes that as Freedom emerges from bankruptcy the company will profit “as well, and I hope better than our peers.
“We believe and are optimistic that we have, if not seen the bottom, are closer to seeing the bottom,” Osborne said. “Judging from the slowing of the rates of decline — significantly slowing — we are on our way to recovery.”
In addition to its daily newspapers, Freedom owns 70 other-format publications and eight television stations. The broadcast licenses will be placed in trust pending approval of the transfer of ownership by the FCC.