Morris Publishing Group to file pre-packaged bankruptcy plan

Posted: Wednesday, January 13, 2010

 Morris Publishing Group, publisher of the Peninsula Clarion, announced Wednesday that it expects to file a prepackaged plan of reorganization by Jan. 19 in U.S. Bankruptcy Court, in order to restructure its debt.

Even before filing it in court, the company said it has "received overwhelming support" from its bond holders for the plan, which involves exchanging $278.5 million in senior subordinated notes for $100 million of new second lien secured notes.

Morris also said the reorganization is not expected to have "any noticeable impact" on its ongoing operations.

"Our readers should see no change in their newspaper at all," said Clarion publisher Stan Pitlo. "We're planning on being around here for a long time."

Morris Publishing reported a net loss of $140.7 million in 2008, due basically to a write-off of goodwill from its balance sheet, and a loss of $13.2 million in the first nine months of 2009. But its operations produced a positive cash flow of $35.2 million in 2008 and $22 million in the first nine months of 2009.

Morris was originally scheduled to make a $9.7 million interest payment on its $278.5 million in notes, a form of debt, on Feb. 1, 2009. But the holders of the notes gave the company several extensions on the payment as it negotiated a debt restructuring.

Morris reached agreement on the note exchange plan in September. It said holders of 75 percent of the notes had agreed to the restructuring, but it needed approval from 99 percent of the note holders to implement the plan. Otherwise, it would file a prepackaged plan of reorganization in bankruptcy court.

Morris Wednesday said it did not get that 99 percent support by its Jan. 12 deadline. So instead it will file the prepackaged reorganization plan.

Chapter 11 bankruptcy allows management to continue operating a company while it attempts to reorganize its debts and its business operations. The company is protected from creditors while it goes through Chapter 11, but its major business decisions during the process are subject to the bankruptcy judge's approval. The company can emerge out of bankruptcy after receiving court approval for a comprehensive reorganization plan.

In a so-called "prepackaged bankruptcy," the company and its major creditors agree on a reorganization plan before the company files for Chapter 11 bankruptcy. Even though the company and most of its creditors may have agreed on the restructuring plan in advance, a company still needs to go through the bankruptcy court to implement the plan if some creditors oppose it. But by reaching agreement in advance, the company and its creditors can streamline the court process and get through the bankruptcy process faster.

Morris's Chapter 11 filing is the latest in a wave of bankruptcy filings that have hit the newspaper industry in recent months. Other notable newspaper publishers that have filed Chapter 11 include The Tribune Co. in Chicago, the Star Tribune in Minneapolis, the Chicago Sun-Times and the owners of Philadelphia's two daily newspapers. At least a dozen newspaper companies have filed for bankruptcy during the recession, according to The Associated Press.

One newspaper publisher, the Journal Register Co., successfully used a prepackaged plan. If filed for  Chapter 11 in February 2009 and emerged out of bankruptcy in August.

Advertising revenue has dropped during the recession at a time when the industry is losing market share to other forms of media.

Most newspapers are still profitable, but their profit margins have been squeezed in recent years, said John Morton, a newspaper industry analyst in Silver Springs, Md.

"They're not throwing off enough cash to meet their debt obligations," he said. "That's what the quandary is."

Morton said the average newspaper owned by a publicly-traded company operated with a 22 percent profit margin in 2003 and 2004. But that dropped to 10.5 percent in 2008 and 8.7 percent in the first half of 2009.

Newspapers are also seeing a big drop in advertising revenue, a combination of the recession and competition from the Internet.

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