The Work

February 23, 2009 1:17 PM

The Bankruptcy Files: The Journalism Edition

Posted by Zach Lowe

On Sunday, two more journalism companies joined Tribune Co., the Minneapolis Star-Tribune, and others in bankruptcy court as the depressing news about the state of the news business continues to roll in. 

For most readers, the biggest item is the Chapter 11 filing by Philadelphia Newspapers, publishers of the Philadelphia Inquirer (known to some as the "Inky") and the Philadelphia Daily News, the city's two major daily papers. The company, which two prominent businessmen purchased from McClatchy Co. in 2006 for $562 million, is carrying as much as $500 million in debt and expects after-interest earnings to drop from $36 million last year to $25 million this year, according to court papers. 

The company has signed up two firms to handle its bankruptcy work: Proskauer Rose and Dilworth Paxson, a Philly firm where former state Pennsylvania Sen. Vincent Fumo, currently on trial for corruption, used to work.

Proskauer partners, led by Mark Thomas, will charge up to $975 an hour; Lawrence McMichael, the lead Dilworth partner on the case, will charge $675, court papers show. (That $975 figure is more than Sidley Austin will get to charge Tribune after a judge in that bankruptcy case last week capped their billing rate at $925 per hour--down from the $1,100 max figure Sidley had requested.)

Thomas did not immediately return a call seeking comment. The company wants to reorganize its "over-leveraged balance sheet," not restructure its operations, the filing says. 

Dilworth has had a close relationship with two of the main partners who purchased the company in 2006 (Brian Tierney and Bruce Toll, head of the home building company Toll Brothers Co.) for years; the firm represented Tierney in his deal to acquire the papers from McClatchy.

The Journal Register Co., which publishes about 20 daily newspapers (including the New Haven Register and the Trentonian), also filed for Chapter 11 protection over the weekend, Reuters reports. The firm tapped Willkie, Farr & Gallagher as lead counsel; partner Marc Abrams will head the firm's team along with partner Rachel Strickland (who is fresh off her work on the Polaroid Chapter 11 case). Partners will be billing a maximum of $995 per hour, court records show. The firm has billed JRC about $2 million in the last 90 days. 

(The company listed about $596 million in debt and $737 in liabilities.)

Abrams actually represented Journal Register's predecessor company when it went through a restructuring 20 years ago, he says. Things were different then.

"That was more a question of leverage," he says. "There was no macro-economic problem."

It's a question of leverage this time as well, Abrams says. The company, based in Yardley, Pa., has already agreed to a deal with lenders to reduce its debt to $225 million, Abrams says. They'll accomplish this mostly by allowing lenders to exchange debt for equity, he says.

Seyfarth Shaw has been brought in as special counsel for labor issues. The firm will focus its work on the company's pension plan, a multiemployer plan that is in "critical" shape, Abrams says. 

Seyfarth billing rates will top out at $760 per hour. 

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