Freedom Communications, the Irvine, Calif.-based parent company of the Tribune newspapers, filed for Chapter 11 reorganization Tuesday as part of a pre-packaged agreement with lenders on restructuring its debts.
Freedom CEO Burl Osborne said the filing will not have an immediate impact on local newspapers such as the Tribune, which will continue to publish as normal.
The major impact will be on the Hoiles family, which has owned the majority of the company since 1935 but will be left with only 2 percent of the reorganized company under the new agreement with lenders.
Family members will have an option to acquire up to 10 percent of the reorganized company in the future, depending on the firm’s performance and value, he said.
“It is true that a long tradition is coming to an end with the family owners, but the institutions the family built are not coming to an end,” Osborne said. “I trust we will see that born out in the coming months and years.”
One family member, board chairman Thomas W. Bassett, a great-grandson of the founder, told the Orange County Register “this is too fresh and too real to comment. We knew it was coming, but it’s really a shock.”
Osborne said the company is generating enough cash to continue to pay suppliers and employees, and the proposed agreement doesn’t envision further layoffs, downsizing or other cost-cutting measures.
However, Osborne said the company will continue to stay as lean as possible.
“It’s in our own best interest to look for ways to do work more efficiently,” he said. “We have agreed to run the company as well as we can.”
The agreement reached with the group of 27 lenders led by JPMorgan Chase Bank calls for the banks to take 98 percent ownership of Freedom in exchange for cutting the firm’s debt by more than half, Osborne said.
In its filing in U.S. Bankruptcy Court in Delaware, Freedom listed its debts at about $1 billion, while assets were $500 million to $1 billion.
Much of that debt was incurred in 2004, when the company bought out some members of the Hoiles family who wanted to cash out of their ownership positions with the company. To do that, the company sold 45 percent of its stock to private equity firms Blackstone Group LP and Providence Equity Partners. They have since written down the value of their investment to zero.
As a result of a sharp downturn in advertising revenue, Freedom defaulted on its debt obligations in October and began negotiating with its lenders to try to modify the repayment terms. An agreement was reached four months ago, but the continuing recession and slow ad revenues resulted in Tuesday’s filing.
Freedom officials hope the company can emerge from Chapter 11 in four to six months, but the process may take longer because the company must receive regulatory approvals from the Federal Communications Commission for the TV stations, Osborne said.
Although the banks and company have reached a settlement, the plan must be approved by the federal bankruptcy judge before it can take effect, he said.
The agreement calls for the new majority owners to appoint their own board of directors and choose a chief executive for the reorganized company.
Osborne said the agreement does not call for the company to sell any of its eight television stations or more than 100 newspapers, including the Tribune, Sun City Daily News-Sun, Ahwatukee Foothills News and Yuma Sun. The company employs 8,200 people in 15 states.
“It’s not our intention to liquidate the company,” he said.
Osborne said no immediate changes are anticipated in the local newspapers’ editorial policies, although he did not comment directly on whether libertarianism would continue to be a central aspect of the company’s philosophy.
“There is nothing in the agreement that would affect our ability to have the editorial positions we believe are appropriate for the communities we serve,” he said.
Freedom is at least the 10th newspaper publisher to file for bankruptcy protection in the past year. Other publishers still in bankruptcy proceedings include the owners of the Los Angeles Times, Chicago Tribune, the Star Tribune of Minneapolis and The Philadelphia Inquirer.
Other newspapers, including the Rocky Mountain News in Denver, Seattle Post-Intelligencer and Tucson Citizen, have shut down their print editions.
In addition to the recession, the industry has been hit hard by the move of readers from print editions to the Internet, where advertising has been harder to attract.
The Associated Press contributed to this report.