The Journal Register Company, parent company of the Daily Freeman and the Sunday Freeman, is expected to emerge this month from Chapter 11 bankruptcy under the ownership of its secured lenders led by JP Morgan Chase & Company. Under the new financial structure, Journal Register, instead of owing $696 million to its lenders, will instead owe its new owners $275 million in new loans. The company’s previous holders of common stock will be wiped out.
Journal Register had filed for protection from its creditors February 21. Judge Allan Gropper of the U.S. Bankruptcy Court in Manhattan approved the company’s bankruptcy plan July 7. To ease its way out of bankruptcy, the company has also secured $35 million in additional exit financing from Wachovia Bank.
Though the reorganization plan included an incentive plan for the benefit of top management, the company’s employees got no such reward. The record included “a hand-written letter received by the court on July 1, 2009” complaining that the company’s employees, who had been forced to take substantial pay cuts, were not offered incentives. Too bad, said the court order. “Although the court understands such concerns and the sacrifices that many employees have made, it has no legal authority to order the debtors to provide a different incentive plan.”
Prospects for the future of the Freeman, itself still a profitable venture, will now lie in the hands of JP Morgan Chase.
Debt payable in four or five years
The unsecured creditors (owed about $27 million) will share a two-million-dollar cash distribution. Certain unsecured trade creditors (the whole class is owed $6.6 million) whom chief restructuring officer Robert Conway deemed worthy of receiving a gift “… necessary to ensure [their] good will…essential to the debtors’ post-confirmation survival” will be paid trade debts. A long section of the 32-page bankruptcy confirmation order justifies the principles behind the gifting.
The company’s investment advisor from Lazard Freres estimated the present value of the enterprise as, at the most, $300 million. The $225 million in debt to the new owners is “bearing interest of up to 15% per annum and maturing in four and five years from the effective date of the plan.”
Cash flow from operations of the reorganized newspaper company is expected to be sufficient to pay its company’s annual debt service of $26 million and estimated capital expenditures of $10 million. Those sums clearly don’t include the principal on the new debt payable in four and five years.
Journal Register Company publishes 19 daily newspapers and more than 150 non-daily publications in upstate New York, Connecticut, and the general Philadelphia, Cleveland and Detroit metropolitan areas. The company, renowned for the high prices it paid for newspaper properties and for its draconian cost-cutting management style, has blamed the operating losses that brought it down on the global recession, weak consumer demand and new forms of competition.++