Judge approves Denver Post parent company’s bankruptcy plan
March 5, 2010
SAN FRANCISCO (AP) – A bankruptcy judge approved Affiliated Media Inc.’s reorganization plan Thursday and freed the publisher of the San Jose Mercury News and 53 other daily newspapers from most of its debt as it tries to boost its sagging revenue.
The confirmation of the reorganization plan in Delaware puts Affiliated Media, the holding company for MediaNews Group Inc., on track to emerge from bankruptcy protection by April 1 and possibly as early as March 18, company spokesman Seth Faison said.
The company filed for Chapter 11 protection on Jan. 22.
Besides a portfolio of newspapers that includes The Denver Post, The Detroit News and Los Angeles Daily News, Affiliated also owns four radio stations in Texas and a television station in Alaska.
The quick approval produced a big payday for Affiliated’s president, Joseph Lodovic IV. He qualified for a $250,000 bonus by getting the plan confirmed before April. That comes on top of a $250,000 award he already got for putting together a plan that was approved by Affiliated’s lenders before the bankruptcy filing.
Under the plan, privately held Affiliated will dump most of its $930 million debt in exchange for relinquishing ownership to dozens of lenders. The lenders, which had been led by Bank of America, will hold 89 percent of Affiliated’s common stock, with the remaining stake going to Lodovic and the company’s CEO, William Dean Singleton. Singleton, who is also chairman of The Associated Press, will retain control of the company’s board.
Heading into the bankruptcy filing, Singleton held a roughly 30 percent stake in Affiliated. Richard Scudder, who co-founded MediaNews with Singleton in 1985, surrendered his holdings as part of the reorganization.
Another publisher, Hearst Corp., will give up half of the 30 percent stake that it acquired in Affiliated’s newspapers outside the San Francisco Bay area as part of a complex $317 million deal in 2006.
In a show of lenders’ confidence in them, both Singleton and Lodovic will remain well paid.
Singleton will receive a $634,000 salary and an annual bonus of up to $500,000 as Affiliated’s CEO. He will also continue to be paid $360,000 annually under a separate agreement with The Denver Post Corp., according to court documents.
Lodovic will get a $1 million salary and an annual bonus of up to $500,000.
Affiliated’s debt will fall to $165 million in the restructuring, although it could end up at $179 million, depending on what happens with certain insurance contracts, according to court documents.
Along with other publishers, Affiliated borrowed heavily before increasing competition from the Internet and the recent recession began to devour newspapers’ main source of income – advertising.
With ad sales steadily falling since 2005, newspaper publishers across the U.S. have had trouble paying back the loans they took on in better times, mostly to make acquisitions. The difficulty has triggered a long list of refinancings and, in the worst cases, bankruptcy filings.
“The economics of newspapers are not going back to the old days,” Singleton said in a Thursday interview. “Having a clean balance sheet is a key component to rebuilding.”
The proceedings have turned into a complicated ordeal for some publishers such as the Tribune Co. The owner of the Chicago Tribune and Los Angeles Times remains in bankruptcy protection nearly 15 months after its Chapter 11 filing.
Affiliated negotiated its “prepackaged” bankruptcy filing with lenders and major shareholders to avoid disrupting its newspapers and other operations, which employ about 8,700 people.
Singleton initially indicated in Thursday’s interview that some workers may be laid off to adjust to the industry upheaval, but later said he must have misunderstood the question. He said Affiliated’s newspapers are still going to have reduce their payrolls through attrition, although he declined to predict how many jobs might be eliminated.
Singleton has already cut costs dramatically. Affiliated’s annual expenses have fallen by $385 million, or 31 percent, since the end of 2006, according to court documents.
Meanwhile, the company’s annual revenue has fallen by $270 million, or 20 percent, during the past two fiscal years ending in June.
Without going into specifics, Singleton also hinted that Affiliated may try to acquire other newspapers as they struggle to recover from the recession. “Consolidation will be another key component in the new media model,” he said.
Documents filed about a lease dispute that arose during the bankruptcy proceedings provided a snapshot on how badly the downturn has hurt some metropolitan newspapers.
The Los Angeles Daily News’ annual revenue has fallen from $94 million in 2005 to $45 million last year, a drop of more than 50 percent. As its ad sales dried up, the newspaper has gone from an operating profit of $10.2 million in 2005 to an operating loss of $2.1 million last year.
In other court documents, Affiliated said the Daily News had eked out a small profit during the final six months of last year because of $9 million in cost cuts. The newspaper’s budget called for 151 employees this year, compared with 422 workers in 2005, according to the court records.