Freedom lawyer tells bankruptcy judge that reorganization should take just a few months

Freedom: Ch. 11 reorg should take just few months

WILMINGTON, Del. — An attorney for Freedom Communications told a federal bankruptcy judge Wednesday that the newspaper publisher hopes to speed through its Chapter 11 reorganization in just a few months.

Freedom attorney Robert Klyman made the remarks as Judge Kevin Carey in Wilmington approved a variety of preliminary motions to help Freedom continue operating during the proceedings. They include paying vendors, maintaining bank accounts and cash management programs, and using cash collateral for operating costs.

Freedom, which owns The Orange County Register in California, dozens of other newspapers, and eight televisions stations, sought bankruptcy protection Tuesday, citing a steep drop in advertising revenue.

The filing by Freedom Communications Holdings Inc. was part of a prepackaged plan approved by a majority of the company’s lenders, which should minimize the haggling that can bog down bankruptcy proceedings.

“We intend to be in and out of bankruptcy on an expedited basis,” Klyman said Wednesday.

But the process could be slowed by the Federal Communications Commission, which must approve any change in television ownership. Freedom’s reorganization plan would anoint the company’s lenders as the new owners of the newspapers and television stations.

If the FCC doesn’t balk, the company should be able to emerge from bankruptcy protection in four to six months, according to Freedom Chief Executive Burl Osborne.

An initial meeting of unsecured creditors was scheduled for next Wednesday, with a second court hearing on Oct. 5.

Freedom’s lenders are owed nearly $771 million but have agreed to forgive most of that debt in return for control of the company. The current ownership group, consisting of family members of founder R.C. Hoiles and the investment firms Blackstone Group LP and Providence Equity Partners, would be left with no more than a 2 percent stake.

“This is really a great day for the debtor,” said Klyman, who described Freedom as a good company with a bad balance sheet.

In its bankruptcy petition, Freedom listed liabilities of $1.08 billion and assets with a book value of $757 million, which Chief Financial Officer Mark McEachen declared had a fair market value “of substantially less than that amount.”

The bankruptcy filing enabled Freedom to reclaim $28.9 million that had been deposited in an escrow account in July as part of a legal settlement reached earlier this year with The Orange County Register’s newspaper carriers. The class-action lawsuit had alleged that the newspaper carriers should have been treated as employees instead of contractors from July 1999 to August 2009.

The settlement would have become final Sept. 14. By seeking Chapter 11 protection before that deadline, Freedom could legally take back the $28.9 million set aside for the settlement. The class-action group will now need to join the other unsecured creditors trying to collect money that they say Freedom owes them.

Besides the Register, Freedom’s other newspapers include The Gazette in Colorado Springs, Colo., and the Odessa American in Texas.

Irvine, Calif.-based Freedom, which has about 5,100 employees and more than 3,000 independent contractors, is at least the 10th newspaper publisher to file for bankruptcy protection over the past year, joining the ranks of companies that own the Los Angeles Times, Chicago Tribune, the Star Tribune of Minneapolis and The Philadelphia Inquirer.

The industry is suffering from the combined effects of the worst economic downturn since World War II and the migration of both readers and advertisers from print newspapers to online media.

“I do have some experience in this industry,” Carey, who is presiding over the Tribune Co.’s bankruptcy case, said with a wry smile during Wednesday’s hearing.