Freedom Communications Inc files for Chapter 11 Bankruptcy Protection

Freedom Communications Inc files Chapter 11

On Oct. 31, major newspaper publisher Freedom Communications Inc., which is the owner of the Orange County Register, announced that it had filed for Chapter 11 bankruptcy protection. According to the Los Angeles Business Journal, the company will be sold to a management group comprised of investors from Freedom Communications and various local entities.

Freedom Communications falls into debt despite recent gains

In its bankruptcy documents, Freedom Communications stated that it had incurred over $40 million in losses since 2013 as the reason for its decision to file bankruptcy. According to the Los Angeles Times, this news came shortly after company officials stated that Freedom Communications was on pace for net gains in 2015 due to management and structural changes. However, the losses it posted under the previous management regime left the company insolvent as it struggled to pay down its debt load.

This is not the first time Freedom Communications has dealt with financial problems though, as it previously filed for Chapter 11 bankruptcy protection in 2009. According to the Wall Street Journal, the company emerged from the bankruptcy in 2010 after it was bought by a group of hedge funds that held asset auction sales for its TV stations and newspaper operations.

The company’s financial status began to turn around in 2012 after a new investor purchased several of Freedom Communications’ assets, including most notably the Orange County Register and the Press Enterprise. According to the U.S. News and World Report, this restructuring called for the company to focus on local news, with a push to move its publications exclusively online.

Despite the refocus of the company, its precipitous drops in advertising and circulation revenues left the company profitable, but unable to cover its debt obligations. This led to several management changes, including the resignation of its CEO in March of this year.

The reorganization plan calls for sale to management group

As part of the management-led group buyout of Freedom Communications, a portion of its owners and local investors will bid to purchase the company’s remaining assets. In its bankruptcy filings, the company stated that it hopes to complete the asset auction sale within 60 to 90 days, during which time Freedom Communications will remain operational. This will include funding all day-to-day operations with post-petition payments to vendors and employees.

The company’s management group has agreed to serve as the stalking horse bidder to buy Freedom’s assets, which will also include the retention of the pension program and the assumption of all outstanding debts.

The significance of the filing is a disturbing trend

The fact that this marks the second time in six years that Freedom Communications has sought Chapter 11 bankruptcy protection represents a disturbing trend in the newspaper publication sector as several publishers have sought Chapter 11 bankruptcy protection in recent years. According to the Wall Street Journal, this list has included the Los Angeles Times, the Chicago Tribune, the Philadelphia Inquirer, the Baltimore Sun and the Minneapolis Star Tribune and Chicago Sun-Times.

On the other hand, Freedom Communications’ Chapter 11 bankruptcy filing could place the Orange County Register in a better position to profit after it emerges from the bankruptcy sale. According to the LA Times, one of the company’s new buyers will include the same investor who purchased the Register’s office last year for $27 million. Further working in the company’s favor is the fact that the company’s new investors are all local entities familiar with the Register.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.