Gazette owner files for bankruptcy protection

Freedom Communications, the Irvine, Calif.-based parent of The Gazette and dozens of other newspapers, filed for bankruptcy protection Tuesday as part of an agreement with its lenders to restructure the media company’s debts.

A plan to emerge from the Chapter 11 bankruptcy already has the approval of a majority of Freedom’s creditors, which should speed the company’s exit from bankruptcy, said Burl Osborne, Freedom’s interim chief executive. That plan does not call for selling or shutting down any newspapers, magazines or television stations, nor does it require any layoffs, salary cuts or furloughs except as dictated by business conditions, he said.

“I consider this to be good news, not bad news,” Osborne said. “It’s not about liquidation or going out of business. It allows the company to operate more effectively.”

Readers, vendors and advertisers should see no interruption and no change in operations. A hearing is scheduled this morning to give Freedom routine approval to pay employees, vendors and maintain existing bank accounts and insurance coverage.

“This gives us a green light to operate the business as usual,” said Mark A. McEachen, Freedom’s chief financial officer.

Freedom’s filing is just the latest among a growing group of media companies that took on more debt than they could afford after getting hit by the cross currents of plummeting ad revenues, the economic downturn and new competition from the Internet. Freedom is the 10th media company to seek bankruptcy protection in the past year and some newspapers — including the Rocky Mountain News — have closed.

Under the reorganization, Freedom’s debt will be cut to $325 million from more than $770 million.

Existing shareholders, including members of the founding Hoiles family, and two private equity firms, the Blackstone Group and Providence Equity Partners, will retain up to a 2 percent equity interest in the company. They also will be granted warrants that will allow them to purchase up to 10 percent of the shares in the company.

However, the family, which has owned The Gazette since 1946, and has since seen the company grow to 33 dailies, 70 weeklies and other publications and eight television stations, will surrender control to the banks. The lenders will select a new board and appoint a new CEO.

Long-term ownership of media properties by bank groups are “uncommon” and “at some point in the future, I would think they would want to” cash out their ownership position, Osborne said.

The Gazette last year had average daily circulation of 95,100 and an average Sunday circulation of 108,558. The Gazette also operates eight other publications and a dozen Web sites, including its flagship gazette.com. Freedom employs 375 in Colorado Springs, including 350 at The Gazette.

“This is too fresh and too real to comment,” said Thomas W. Bassett, chairman and a great-grandson of the founder. “We knew it was coming, but it’s really a shock.”

Osborne said he expects the bankruptcy process to take four to six months, although it may take a little longer to get Federal Communications Commission approval of the ownership change for the company’s television stations.

The company expects to lose more than $80 million this year because of various one-time accounting costs, but Freedom is still generating positive cash-flow from its ongoing operations, Osborne said.

Freedom has been struggling to repay its debt for the past year, triggering cost-cutting measures that required workers to take unpaid leave and swallow an across-the-board 5 percent pay cut. The company employs 8,200 people in 15 states, including about 3,200 contractors.

The company owes more than it is worth. The bankruptcy filing lists $757 million in assets — now worth “substantially less than that amount” — and $1.077 billion in debts. The biggest debt by far is the $770.6 million the company owes to its lenders, headed by JPMorgan Chase Bank.

Tuesday’s filing is the latest chapter of a family dispute dating back to the 1980s which resulted in a major rift among descendants of founder Raymond Cyrus “R.C.” Hoiles.

In 2002, Timothy Hoiles, grandson of the founder who lives in Colorado Springs, led a group of dissident family members who wanted to cash out their shares, claiming the company had been poorly managed.

Blackstone and Providence agreed to put up $467 million to help with the buyout, which left the company with $1 billion in debt.

“I want to reinforce and let everyone know this is a very good thing for Freedom and for the people in the company and the people served by the company,” Osborne said.

Reporter Wayne Heilman contributed to this report.