By Jeb Bing
The publisher of the Daily News in Palo Alto, the San Mateo County Times in San Mateo, the Mercury News, and many other newspapers in the Bay Area, is filing for bankruptcy protection.
MediaNews Group Inc., using the name of Affiliates Media Inc., a holding company that had not been disclosed previously, announced it would seek protection from creditors in federal court. The creditors include Hearst Corp., owner of the San Francisco Chronicle and a shareholder in MediaNews.
The announcement was also made Saturday in various newspapers under MediaNews control.
Under the so-called "prepackaged bankruptcy" filing, the percentage of the company controlled by William Dean Singleton, its chairman and chief executive officer, and management through stock and warrants will remain at 20 percent, according to news reports. However, Hearst Corp., owner of the Chronicle, will apparently give up its share in the 54-newspaper chain, along with Singleton's longtime partner, Richard Scudder, 96, of New Jersey.
Scudder was previously chairman of MediaNews. Now Singleton is both chairman and CEO, as well as CEO of the Associated Press organization, which also posted the bankruptcy filing story.
The Wall Street Journal reported that MediaNews had been teetering for months and, according to Singleton, had been trying to rework its debt load instead of filing for Chapter 11 bankruptcy.
"It was personally difficult for me," Singleton told the Journal. "I'm a ranch kid from West Texas, and we don't like the 'B word.'"
The Journal said that Singleton's ability to retain control over MediaNews "represents a face-saving victory in the company's restructuring."
Singleton said that once the bankruptcy is over, he plans to lead an industrywide consolidation. Asked which newspapers or groups of newspapers might be combined, Singleton answered: "You can look at the map."
The MediaNews chain owns most of the paid-circulation dailies in the Bay Area including the Daily News in Palo Alto, Mercury News, the Herald, Times, Oakland Tribune, Marin Independent Journal and San Mateo County Times.
In its statement issued through PR Newswire, a commercial news and information distribution service, Affiliated Media Inc. said it has obtained the approval of its lenders for the financial restructuring of the company that will sharply reduce its debt, boost its cash flow and allow greater financial flexibility. The plan will be implemented in the near future through the "prepackaged" chapter 11 filing.
Affiliated Media is the holding company for the MediaNews Group family of newspapers, the nation's second-largest newspaper publisher by circulation and owner of 54 daily newspapers, over 100 non-daily newspapers, as well as Web sites and television and radio broadcasters that serve markets in 12 states.
Unlike other media company reorganizations, Singleton said this one does not involve the newspaper operations or have any effect on employees or vendors of the newspapers. Only the holding company will restructure.
The reorganization, structured in consultation with the company's senior lenders, Affiliated Media said, provides for a swap by senior lenders of debt for stock, allowing debt to fall from about $930 million to $165 million. The group of 116 lenders led by Bank of America would hold a majority of stock but not voting control.
Management led by Singleton would retain 20 per cent of the company through stock and warrants. Singleton and company President Joseph J. Lodovic IV will own all class A shares, allowing them to choose a majority of the seven-member board of directors. Other stockholders will own class B and C shares.
Singleton said the company has enough cash to fund its operations.
"In our search for a new model that reflects the realities of today's changing newspaper environment, we have come up with a solution that restores financial strength and flexibility to our balance sheet," Singleton said.
"It does not affect the operations of any of our newspapers or vendors or other operations," he explained. "It gives us one of the strongest balance sheets in the industry. It gives us breathing space to create a new model for the newspapers we publish."
He added: "One critical advantage of our plan, compared with those by some other media companies, is that it is a prepackaged plan that has the approval of lenders and unlike other filings, this one does not involve our newspaper operations."
He noted that the plan allows for claims of Affiliated Media's trade creditors, suppliers and employees to be unaffected by the filing and paid in the ordinary course as they come due. Almost all of the company's trade creditors, suppliers and employees are totally unaffected in any event since none of the individual newspaper operations are involved in the reorganization plan.
"For them, it's business as usual," he said.
The company is current on all vendor payments, he said, and expects to remain so. He said the company has adequate cash to fund all its operations in a normal fashion.
According to the PR Newswire report, senior lenders to the company are owed approximately $590 million, guaranteed by certain affiliates. The company also owes an aggregate principal amount of about $326 million to holders of subordinated notes.
By accepting the prepackaged plan, senior lenders will trade their existing claims and guarantees for a pro-rata share of the new secured term loan, in a smaller principal amount but with more collateral and a more financially sound borrower, as well as ownership of a majority of the new equity of the reorganized company, subject to a gradual dilution as a result of grants of restricted stock.
Subordinated note holders will receive warrants for future equity. All existing equity interests in Affiliated Media will be cancelled.
In contrast with most filings, where creditors may oppose the proposed plan for re-organization, a prepackaged filing means that affected creditors have already seen and accepted the plan prior to the time it is filed, so that it can proceed with little debate or negotiation, and can swiftly win approval from the court.
Singleton said the newspaper industry is undergoing a major transformation, exacerbated by the current recession, which is causing falling advertising, a slumping retail market and significant drops in classified advertising. About 80 percent of Media News' revenues are generated by advertising sales, and those sales will likely continue to be affected by the economic downturn, he added.
Singleton said that in recent years, the company has undertaken a number of strategic initiatives to improve operating cash flow and to reduce costs. But it became clear yesterday's balance sheet couldn't be sustained by today's business environment.
Singleton said that even as the daily newspaper environment has badly deteriorated over the past three years, MediaNews newspapers have performed better than the industry as a whole.
Circulation of the company's newspapers grew for the September Audit Bureau of Circulations six-month reporting period, while industry circulation dropped 10.6 percent, he said.
The growth included gains by Media News flagship paper, the Denver Post, after the Rocky Mountain News, its primary competitor, ceased publication. Excluding the Denver gain, the company's circulation dropped 4.8 percent, still well below the industry's 10.6 percent decline.
The PR Newswire report also stated that Media News advertising overall has declined less than the industry as a whole.
"December quarter advertising results have shown substantially smaller declines than were experienced in the first nine months of the year," the report stated, adding that all but one of the company's newspapers are profitable.
"This reorganization does not come without pain," Singleton said. "Current shareholders will be losing the value of their holdings. But we believe that adopting this plan will give us a far better platform from which to develop, grow and participate in the consolidation and re-invention of the newspaper industry."
The Affiliated Media Inc./Media News prepackaged bankruptcy filing would be at least the 13th bankruptcy filing by a U.S. newspaper publisher in the past 13 months.
The owners of dozens of daily newspapers have been pushed into bankruptcy protection as the recession and competition from the Internet have sapped their advertising revenue.
The decline in advertising revenue has been particularly harsh on the dailies, publishers say, because they have been much more dependent than weekly newspapers on classified, automobile, employment and large chain store advertising. Much of that has migrated to online sites or just disappeared because of store mergers, closings and other factors.
Just this week, the Sacramento Bee announced that it will eliminate 25 jobs due to a "prolonged period of revenue declines." The number of newsroom jobs to be cut wasn't released.
It's the fourth round of layoffs at the 248,000-circulation daily in the last 18 months. In a statement, executives with McClatchy said they hope to get enough volunteers to take voluntary buyouts to avoid layoffs. The cuts will take place Jan. 29. They said the decline in advertising revenue is easing, but hasn't ended.
"The economic downturn has lasted much longer than anticipated," Bee Publisher and President Cheryl Dell said in a memo to employees.