August 30, 2019
The New York Times recently declared:
The crisis in local journalism is catastrophic — and it will get worse. More than 1,300 communities across the United States are without local news coverage, and thousands more have inadequate journalism. At the next recession, the collapse will accelerate.
Studies have now validated what we all know intuitively: The disintegration of community journalism leads to greater polarization, lower voter turnout, more pollution, less government accountability and less trust.
Insert doomsday music here, folks.
Champaign Illinois-based The News-Gazette Inc. is the leading local news source in Champaign County, Illinois. It publishes a daily newspaper that reaches approximately 22k people Monday-Friday and 24.3k people on Sunday; it has five weekly newspapers, two advertising-oriented shopper products and two magazines; through a wholly owned debtor subsidiary, DWS Inc., it also operates three radio stations and several companion websites.
Now it is another example of a struggling local news provider. The company filed for bankruptcy in the District of Delaware over the holiday weekend.
In 2008, the company “took on substantial debt to complete the first phase of a new 48,865-square-foot printing and distribution facility” and completed said phase (the distribution part) just prior to the Great Recession. The rest of the project — including the acquisition of a new printing press geared towards driving a regional commercial printing business — never got done. The company notes:
The “great recession” of 2008, however, marked the beginning of an accelerated trend of advertising revenue declines for the newspaper business in general. As revenues fell and financial performance suffered, expansion plans had to be shelved because Debtors could neither access, nor afford, the capital necessary to complete the project.
Over the last decade, circulation trends have generally been better than industry averages owing in large part to a continued commitment to maintaining a very high-quality news product. During the last two years, however, the rate of decline in circulation has increased meaningfully.
“Better than industry averages” is, by definition, a relative measurement. Which ain’t saying much. On the other hand, the metrics are “saying much.” Revenue dropped from $17.1mm in 2017 to $13mm in 2018. EBITDA went from $70k in 2016 to -$4.83mm in 2018.
Consequently, the debtors have spent the last few years rejiggering their business. That, naturally, means that people lost jobs. The debtors outsourced their production operations and liquidated its production assets; they also reduced their expenses and eliminated the facility-related debt. Nevertheless, the debtors needed an escape hatch; in late 2018, they engaged a broker to solicit interest from a strategic buyer “with financial resources and media footprint to further economize operations” to operate the debtors as a going concern.
The goal of the chapter 11 bankruptcy filing is to effectuate a sale to Community Media Group LLC by early November. Community Media Group is a privately-held multimedia company which owns and operates roughly 40 newspapers in six states. Subject to standard sale adjustments, CMG will pay $4.5mm.
It appears that the future of local news is increasingly in their hands.
What happens to the employees? Well, as noted above, a number have already lost their jobs and those that remain were the glorious recipients of WARN notices (though some may be rehired). The company’s CEO said:
“It is most certainly regrettable that some employees won’t be rehired during the transition. Our economic circumstances — which are not unique to this operation — require that we operate more efficiently. Absent this sale transaction, we would be making similar decisions.”
The buyer is also leaving behind any and all liabilities (including withdrawal liabilities) with respect to defined benefit plans, pensions or similar retirement plans. As luck would have it, those liabilities make up the debtors’ three largest creditors:
With a purchase price of $4.5mm, well, you can get a sense of how creditors, including folks who depended upon those pensions, will fare here. Pension liabilities alone are nearly $9mm.
And so this is a bittersweet result. The paper will live on but those who helped build it will be undeniably affected.
Jurisdiction: D. of Delaware (Judge Owens)
Legal: Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Olivere) & Neal Gerber & Eisenberg LLP (NIcholas Miller Jr., Thomas Wolford)
Claims Agent: Stretto (*click on the link above for free docket access)
Other Parties in Interest:
Stalking Horse Bidder: Community Media Group/Champaign Multimedia Group LLC
Legal: Leech Tishman Fuscaldo & Lampl LLC (John Steiner, Gregory Hauswirth)