Freedom Communications Inc.’s Chapter 11 bankruptcy filing reveals an outfit that’s burdened with debt and court judgments—well short of the assets needed to satisfy a legion of creditors.
Yet the same filing also reveals a couple of points that have gone largely overlooked in the tumult touched off by the move to seek bankruptcy protection: Freedom’s flagship Orange County Register in Santa Ana and the Press-Enterprise in Riverside are expected to bring in $178 million in revenue and an operating profit of $11 million this year.
Add the Register’s role as the biggest dog when it comes to media in a market that’s been the envy of Southern California in the ongoing economic recovery, and you have some clues about why another player with a major presence in the region wants to make sure it gets a “meaningful seat at the table”—beside Freedom’s management—during the upcoming bankruptcy auction.
“We sent a very strong signal about our intent by proposing to the bankruptcy court in Santa Ana that Tribune Publishing be the provider of funds to fund Freedom,” said Jack Griffin, chief executive of Tribune Publishing Co., which owns the Los Angeles Times and the newly acquired San Diego Union-Tribune, and would fill in much of the turf between those two dailies by adding the Register and Press-Enterprise to its fold.
The signal came in the form of a $3 million short-term loan to help Freedom avoid getting hamstrung by a cash crunch as its case winds its way through bankruptcy court.
“I think that statement speaks for itself in terms of our financial wherewithal, our commitment, as well as the capacity of the team to take decisive action,” Griffin said during last week’s earnings call for Chicago-based Tribune Publishing—a duty he handled from the Times’ office in Los Angeles.
A win in the bankruptcy auction would hold the potential to bring economies of scale for Tribune Publishing on production and distribution expenses—good for annual savings in the range of $10 million to $25 million, according to Ken Doctor, a highly regarded industry analyst.
“Those would be atop the $12-$20 million in annual synergies wrung out of the L.A./San Diego combination.”
Another bid is expected from a group led by investor-turned-Chief Executive Richard Mirman and Chairman Eric Spitz, who first joined the company as a colleague of Aaron Kushner about three years ago.
Kushner
Kushner led an investment group that bought Freedom for around $50 million in cash and assumed pension obligations estimated to total more than $100 million.
Kushner served as the top executive and publisher of the Register for two years, embarking on expansions that proved to be unsustainable. His tenure ended last year after disruptions to daily distribution upset subscribers of the Register and both newspapers went through rounds of layoffs.
Kushner no longer has a role in operations of the company and will likely see his equity wiped out in bankruptcy, along with numerous other investors (see related item in OC Insider, page 3).
Mirman and Spitz, meanwhile are expected to join real estate developer Mike Harrah, the largest commercial property owner in Santa Ana, in an effort to buy Freedom (see related story, page 1).
The company’s biggest chunk of debt—about $19.5 million— is owed to hedge fund Silver Point Finance LLC, according to recent filings with the U.S. Bankruptcy Court’s Central District of California.
That’s a remnant of a $26 million loan taken out by Kushner to fund the purchase of the Press-Enterprise for $27.2 million from Dallas-based A. H. Belo Corp. The loan was guaranteed by a lien on Freedom’s 14.3-acre property in Santa Ana and six acres that once was home to the Press-Enterprise newsroom, which has since moved into rented space.
Freedom was in default on the loan to the Greenwich, Conn.-based Silver Point by July 2014. The publisher sold its five-story headquarters building, the longtime home of the Register on Grand Avenue in Santa Ana, getting $24 million from Harrah. It paid back $18 million to Silver Point in September 2014, but the balance continued to grow on fees charged by the lender.
Silver Point now is offering about $3 million to Freedom as working capital during bankruptcy proceedings. Its offer calls for refinancing terms of its loan to Freedom to include a provision that would essentially guarantee repayment.
A lawyer for Tribune Co. knocked Silver Point’s offer as “inappropriate.” Tribune’s offer, meanwhile, asks for a $3 million discount against any price it might pay for Freedom or a refund if it doesn’t end up the winning bidder.
Judge Mark Wallace approved an interim order last week. A final hearing is set for Dec. 14.
Freedom sought other financing, but “through discussions with the potential third-party lenders, however, it became readily apparent that [its] existing capital structure, including [its] level of secured debt (relative to asset value) and lack of unencumbered assets, foreclosed any opportunities … to access unsecured or administrative credit,” Chief Financial Officer Chris Dahl said in an affidavit filed with the court.
Other Secured Creditors
Other secured creditors who would be in line for proceeds of a bankruptcy sale are Freedom’s former chief executive, Mitchell Stern, and Mark McEachen, a former chief financial officer. The pair have won a court settlement that awards them $4.15 million in combined severance pay—a claim that dates back to Kushner’s brief and tumultuous term at the company’s helm.
Next in line is Pension Benefit Guaranty Corp., which is asking for $15.46 million in missed pension plan contributions. It filed a first lien—among several—against Freedom’s assets in August 2014. The fund’s balance couldn’t be confirmed as of press time.
Court documents also show Freedom owes Harrah’s OC Media Tower LP $2.1 million in back rent for its headquarters building, for which it filed a lien in September 2014. Then there’s a $10 million lien of Angelo, Gordon Management LLC, part of a lawsuit filed against Freedom in which shareholders who sold to Kushner’s investment group were looking to recover $17.45 million that was withheld during the sale of the company in 2012. The matter was settled in March in Angelo Gordon’s favor.
Freedom’s unsecured debts include the balance of $7.5 million it owes to Angelo Gordon Co. in New York, $1.9 million to American Express, $1.5 million to Latham & Watkins LLP in Boston, $1.03 million to Ponderay Newsprint Co. in Los Angeles, and smaller totals to creditors ranging from Goodwill of Orange County to Universal Protection Security System in Santa Ana.
The publisher has asked the court to allow it to pay $565,683 in refunds to 16,709 customers and $790,000 to newspaper delivery companies.
