Freedom bankruptcy means questions ahead for Gazette

It’s probably safe to say every community has a love-hate relationship with its daily newspaper. But whether you swear by it or swear at it, you usually know what to expect.

For the 63 years Freedom Communications founder R.C. Hoiles and his descendants owned The Gazette, Colorado Springs residents grew accustomed to aggressive local reporting, support of community charities and a fiercely libertarian voice on the paper’s editorial page.

But it’s the end of an era. Freedom filed for bankruptcy protection this week. In exchange for wiping about half of Freedom’s $770 million debt off the books, the company’s lenders — led by a consortium of 26 banks — will take over 98 percent ownership of the chain’s 33 dailies, 70 weeklies and other publications and eight television stations.

The debt-for-equity swap, common as companies founder in the worst economy in decades, already has won approval from Freedom’s creditors and is expected to expedite the bankruptcy process, which a Freedom attorney said Wednesday could be completed in a few months.

During a hearing Wednesday, a Delaware bankruptcy judge approved Freedom’s routine request to continue its operations, including paying employees, vendors and maintaining bank accounts and insurance coverage, the Associated Press reported. Readers, vendors and advertisers, meanwhile, shouldn’t see any interruption or change in Gazette operations, Gazette Publisher and President Steven Pope said.

That doesn’t mean major changes aren’t coming,  however.

The takeover by lenders is a first step; a subsequent sale to another owner likely will follow, newspaper analysts say.

And new owners could mean changes in Gazette news coverage, its operations and staff, interaction with the community and editorial voice, industry experts said, although it’s too early in the bankruptcy process to predict.

“It would be terrible for any of them to lose their jobs,” Springs Mayor Lionel Rivera said of The Gazette’s 350 employees.

“It’s a going enterprise, and it provides a service to the community...People need a way to get their message out, in one form or another, through paid advertising or through stories. So, yeah, I care, whether or not the paper continues on as a going concern and I hope and expect that to happen.”

Here’s a look at some questions raised by the bankruptcy filing:

• How long will lenders own The Gazette?

Unlike private equity investors that want a quick return, banks are “long-term oriented” and will want Freedom’s properties to be “sufficiently profitable” before selling, said Maryland-based newspaper analyst John Morton. He said he doesn’t know how long that might take.

Alan Mutter, a San Francisco-based corporate consultant and former newspaper editor, agreed, yet added that banks don’t like being owners because there’s a chance something can go wrong that they can’t fix.

“The bankers will hold onto it as long as they think they have a chance of making it more valuable,” Mutter said. “The minute that they feel like it’s at the most value they can imagine, they would sell it, because they don’t want to overstay their welcome.”

• What happens while the banks are owners?

The banks won’t actually operate The Gazette; they’ll appoint a board of directors to operate the former Freedom company, said Burl Osborne, interim Freedom CEO. Yet, as the banks take steps to ensure profitability, they could explore layoffs, scaling back the paper’s circulation area, cutting syndicated features and reducing the amount of news, among other cost-cutting measures, Mutter said. Nothing is certain, he added.

• Who might want to buy The Gazette?

At the moment, “probably nobody,” since newspapers and media companies have suffered huge advertising losses as a result of the recession and Internet competition, Morton said. Once conditions improve, another newspaper chain is possible, he said.

Private equity investors are showing an interest in newspapers because prices are at “rock bottom,” he added.

Mutter said Denver Post owner MediaNews Group would be a logical buyer because it could hold down expenses by combining operations with the Post. The Gazette already delivers the Post in the Pikes Peak region, and the two papers share news stories.

MediaNews Chairman and Post Publisher Dean Singleton said he’s always interested in Colorado properties, but has had no talks with Freedom officials about purchasing The Gazette.

“We’d have to wait and see how things play out,” said Singleton, whose company also has been reported to have its own massive debt load.

Singleton unsuccessfully sought to partner with Gannett Co. Inc. — the nation’s largest newspaper chain — to buy Freedom in 2003 when Hoiles family members entertained offers.

John Weiss, publisher of the Colorado Springs Independent weekly newspaper, said local owners would be critical because they’d have a vested interest in the area’s well being.

“For me, in every danger, there’s opportunity and my hope is that opportunity will develop so that somebody local can take over the paper,” Weiss said.

• What happens to Gazette operations when a new owner takes over from the banks?

Mutter said the same types of changes are possible — staffing and circulation reductions and the like.

But possible changes might depend on the paper's profitability, how much new owners have borrowed to make the purchase and whether they have deep enough pockets to withstand tough economic times, Morton said.

Some owners hire managers and step aside; others meddle, he said.

“If they’re dumb as a post,” Morton said, “they’ll undermine the newspaper’s integrity and journalism ... If you get that kind of an owner, the community will suffer. The newspaper will suffer.”

Morton, however, said some new owners won’t want to make major changes. The Minneapolis Star-Tribune’s new ownership, for example, brought in veteran and experienced leadership to helm the paper, he said.

“If you get an intelligent buyer, and there are a lot of them out there, you probably won’t notice a great deal of difference,” he said.

Changing the newspaper’s libertarian viewpoint on the editorial page — controversial at times — isn’t a sure thing, either.

Doing so could alienate readers who have grown accustomed to the paper’s views, some experts said. “I’ve bought a lot of newspapers,” Singleton said, “and I’ve never changed the editorial philosophy.”

Osborne said Tuesday that nothing in the agreement with Freedom’s lenders would affect the editorial position of The Gazette or other papers.

“I assume the new owners will not act against their self interest by interfering in the way we interact with the communities where we operate,” he said.