Judge approves Sun-Times sale, unions expected to approve contract changes

Bankruptcy judge approves Sun-Times sale

WILMINGTON, Del. — A Delaware bankruptcy judge on Thursday approved the sale of the Chicago Sun-Times and other newspapers owned by its parent company to a group led by Chicago businessman Jim Tyree.

The Tyree group offered to pay $5 million for the assets of the Sun-Times Media Group Inc., which includes the Chicago tabloid and more than 50 suburban publications. The investors also plan to assume about $22 million in liabilities.

A major hurdle to closing the deal was cleared Wednesday when leaders of five unions that had rejected contract concessions demanded by Tyree tentatively agreed to contract changes. Rank and file members of four of the unions voted Wednesday night to accept contract changes agreed to by the Chicago Newspaper Guild. Members of the fifth union, representing editorial workers at the Post-Tribune of Northwest Indiana, were expected to vote Friday.

“We are confident that they will vote in favor of this deal by the end of this week,” Sun-Times attorney David Agay told Judge Christopher Sontchi at Thursday’s hearing.

Agay also said members of 10 of 11 separate trade unions have approved amended contracts, and that the remaining union, which represents a small group of typographical workers, is expected to give its consent soon.

“We’re close; we’re very close, your honor,” he said.

James McDonough, vice president and general counsel for the Sun-Times Media Group, testified that if the sale order were approved, the deal is expected to close by the end of the month. He characterized the remaining conditions to be met prior to closing as “housekeeping matters.”

The Sun-Times Media Group filed for Chapter 11 bankruptcy protection in March, citing $479 million in assets and $801 million in debt amid plunging advertising revenues that have contributed to about a dozen other media company bankruptcies.

McDonough said some members of the existing Sun-Times management team would stay with the new company after the sale, but that decisions on who will stay and who will go have not been made yet.

Sontchi approved the sale after overruling objections by the Sun-Times’ committee of unsecured creditors and a pension plan for the Communications Workers of America.

Michelle McMahon, an attorney for the pension plan, said in a court filing that by withdrawing from the pension plan, the Sun-Times would trigger a $17 million withdrawal liability, but the company has not proposed a method of payment or offered the pension plan adequate protection.

Attorneys for the Sun-Times argued that the pension plan would still have an unsecured claim after the sale and should not be allowed to improve its position relative to other creditors or the bankruptcy estate.

But McMahon argued that the pension plan would have a direct claim against the purchaser, not a general unsecured claim.

“It’s apparent we’re only going to get pennies on the dollar,” she said.

The committee, meanwhile, expressed concern about adequate enforcement mechanisms in the event that Sun Times Media Group breaches an agreement to operate the Sun-Times as a going concern for at least 180 days after closing.

“If that obligation by the buyer isn’t met, the debtor should have remedies to enforce that obligation,” said Scott Cargill, an attorney for the committee.

The committee also wanted an order directing the Sun-Times to seek a determination on its rights to $24.5 million being held in escrow in connection with the settlement of a class-action lawsuit alleging malfeasance by officials with former Sun-Times owner Hollinger International.

Hollinger’s CEO, Lord Conrad Black, was convicted in 2007 of siphoning millions of dollars from the Sun-Times and its other newspaper holdings.

Sontchi said the contract provisions regarding operating the Sun-Times as a going concern for 180 days were sufficiently clear. He also noted that the company was not selling its interests in the settlement escrow.

“I don’t think what time the debtors will get the proceeds from the escrow is relevant for the sale,” the judge said. “I don’t think that’s an issue for today.”

The Sun-Times owes as much as $608 million in back taxes and penalties related to Black’s financial dealings, but Agay noted that the Internal Revenue Service, the company’s largest creditor, did not object to the sale.

Sun-Times board chairman and interim CEO Jeremy Halbreich expressed confidence in Tyree and his investment group’s plans for the media group.

“These new owners will work hard to establish a wonderful, long future for our publications and for our employees, and finally, all of the legacy issues and distractions that have followed and negatively affected our products will be put to rest,” tey said in a statement.