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A New York-based private equity firm specializing in distressed debt has become a leading investor in the parent company of the Orange County Register as it emerges from bankruptcy.

Angelo, Gordon & Co. has gained a key stake in Irvine-based Freedom Communi-cations Inc. by acquiring part of its debt during its bankruptcy reorganization, according to Freedom and sources familiar with the situation.

The firm has less than a majority stake, according to one source. Another said it’s close to what two private equity firms used to have in Freedom, or about 45%.

Representatives of Freedom and Angelo Gordon declined to comment.

The investment is seen as a bullish sign for Freedom, which runs 33 newspapers and eight television stations.

“The company’s prospects are vastly underappreciated,” said Alan Bell, who served as the company’s chief executive from 2002 to 2006. “The hunger for information and entertainment hasn’t gone away.”

Bell serves on a committee of unsecured creditors in Freedom’s bankruptcy. The group is made up of former employees with pensions as well as vendors and others.

The committee is set to disband once Freedom emerges from bankruptcy, which could be any time now. A federal judge approved Freedom’s reorganization plan on March 10.

“With the right management and new ownership, Freedom’s future won’t be so burdened by a bad balance sheet,” Bell said. “It’s not surprising that investors are showing interest.”

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Freedom filed for bankruptcy in September after trying to strike a deal to appease creditors holding about $1 billion in debt.

Most of the debt was incurred in a 2004 buyout by private equity firms Blackstone Group LP and Providence Equity Partners LLC that kept members of Freedom’s founding Hoiles family in control.

As part of the company’s reorganization, secured debt holders—including investment banks as well as Angelo Gordon—are taking over ownership in exchange for forgiving about $445 million in debt.

Post Bankruptcy

Freedom is set to emerge from bankruptcy with about $325 million in debt.

The company is expected to soon update its ownership. Going into bankruptcy, a group of 27 lenders led by JPMorgan Chase & Co. and including SunTrust Banks Inc. and Union Bank NA of California held Freedom’s secured debt.

The creditors-turned-owners have put a new board in place. For the first time since R.C. Hoiles bought the Register in 1935, the board doesn’t include one of his descendents.

Board members include: Jim Dunning, a media investor who worked at Rolling Stone and ran Ziff Davis Publishing Co.; Don Grenesko, former financial chief of Los Angeles Times parent Tribune Co. of Chicago; Ross Levinsohn, founding and managing director of Fuse Capital in Palo Alto; and Sean P. Moriarty, entrepreneur in residence at Menlo Park venture capital firm Mayfield Fund.

In February, Freedom Chief Executive Burl Osborne told the Register and other company papers that some secured debt holders were selling their holdings and that Angelo Gordon was among the buyers.

“Angelo Gordon wasn’t a force to be dealt with when the reorganization plan was being put into place,” said Daniel Callahan of Santa Ana’s Callahan & Blaine, which represents newspaper carriers and other unsecured creditors. “It sounds like they’ve been a late entrant into the game.”

The firm has been buying up stakes in other distressed media companies, including the Philadelphia Inquirer and the Philadelphia Daily News.

A federal appeals court last month put a crimp in Angelo Gordon’s effort to buy the Philadelphia papers out of bankruptcy with a ruling favoring local owners currently in control.

The firm is appealing the ruling.

It’s also involved in a legal battle against Goldman Sachs Group Inc. over rival bids for Canadian broadcaster Canwest Global Com-munications Corp. Angelo Gordon teamed with New York-based Golden Tree Asset Management LP to vie for control of the media company’s debt, according to reports.

In Orange County, Angelo Gordon struck a deal last month to buy Santa Ana’s Griffin Towers office complex from Los Angeles-based Maguire Properties Inc.

Along with Dallas-based Lincoln Property Co., Angelo Gordon reportedly is buying the two 14-story buildings for a combined $90 million.

The buildings were valued at $200 million when Maguire refinanced the property in 2008.

Angelo Gordon executives believe the value of newspapers and other media have been pushed down too far in the downturn, according to a source familiar with the company’s thinking.

Some Angelo Gordon managers see signs that advertising revenue is rebounding, the source said.

Projections

That same optimism is displayed in Freedom’s reorganization plan.

The company’s rosy projection sees revenue going from $535 million in 2010 to $648 million by 2014.

Freedom’s hard-hit newspapers, led by the Register, are seen growing from nearly $398 million in 2010 revenue to $464.7 million in 2014.

The company projects an operating profit but expects to lose money on a net income basis this year and next with a net profit of $45.9 million in 2014.

Earnings before interest, taxes, depreciation and amortization—a profit measure favored by media companies—is projected at $61 million for 2010 and doubling to $123 million by 2014.

The numbers are pro forma and exclude results from a recently sold newspaper in Arizona and special charges.

Newspaper circulation, which has been in a long-running decline, is expected to remain essentially flat, according to bankruptcy documents.

The company hopes to offset declines in circulation through higher prices for advertisements, according to the filing.

Interactive revenue from Freedom’s Web sites is seen going from $41 million in 2010 revenue to $76.3 million in 2014.

Freedom’s cost cutting is expected to continue even as the company appears to be preparing to add workers. It’s projecting payroll and benefits to rise from $48.6 million this year to $60.3 million in 2014.

Industry analyst John Morton calls the projections “doable.”

Smaller Freedom newspapers should recover more quickly, he said. A larger paper such as the Register could be facing a sluggish rebound, according to Morton, who runs Morton Research Inc., based in Silver Spring, Md.

“As the largest newspaper in the chain, the biggest question mark could be how much of the Orange County Register’s classified advertising comes back,” Morton said. “There’s still debate in the industry over how much business newspapers can recover on a permanent basis.”

For reprint and licensing requests for this article, Contact Kim Lopez