After the Orange County Register filed an emergency bankruptcy at 1 a.m. on Sunday morning, Tribune Publishing, the owner of the Los Angeles Times, surprised a federal court hearing with $3 million zero rate interest loan to keep the Register and Riverside’s Press-Enterprise operating in what appears to be a move to gain monopoly control of SoCal newspaper publishing.
The bankruptcy was forced after minority shareholders in the investment group that bought Freedom Communications, the publisher of the Orange County Register and Press-Enterprise, filed a lawsuit asking the Delaware Chancery Court to put the company into receivership, according to a report by Law360.
The complaint was unsealed after the bankruptcy, and claimed operations needed independent oversight because the company was “insolvent and in financial distress from mismanagement.”
Chicago’s Tribune Publishing, which already acquired the Times and the San Diego Union-Tribune, made a surprise proposal during a hearing in November 3 in the Santa Ana U.S. Bankruptcy Court to offer zero-interest debtor-in-possession financing to keep the Register and Press-Enterprise operating. The offer requires the Tribune to be the first creditor paid and that the cash serve as a “refundable deposit” in any bid it may make for the newspapers and their corporate parent, Freedom Communications.
William N. Lobel of Lobel Weiland Golden Friedman LLP, who has been near the top of the Southern California “Super Lawyers” list compiled by Los Angeles Magazine for the last 13 years, represented Freedom Communications in the bankruptcy case.
Lobel had submitted the Freedom Communications plan to keep the newspaper going with a high-interest-bearing $3 million loan from business lender Silver Point Capital, which is already owed $19 million by Freedom. Lobel said that if Tribune is serious about the loan, Freedom will accept the offer due to significant savings compared to the Silver Point loan.
Aaron Kushner, who preached the virtues of local journalism and a print product, bought Freedom Communications in 2012 for $50 million and the assumption of pension liabilities. But bankruptcy documents reveal the company lost over $40 million in the last two years during a rapid expansion under Kushner as CEO.
Kushner left in April and Rich Mirman became Freedom’s CEO and Publisher. The bankruptcy is Freedom Communications’ second in six years.
Many Santa Ana businesses had expected local developer Michael Harrah to buy the Register after he bought the paper’s 175,000-square-foot building, located just off Interstate 5 in Santa Ana, in September 2014. Harrah paid $27 million for the building and then leased it back to the newspaper for 20 years.
Harrah has been trying to build a massive 37 story building to “transform the city from a Mexican slum to a gentrifying wonderland,” according to a story by the OC Weekly’s Gustavo Arellano. Arellano added, “Harrah dropped mucho dinero with the Register on a nearly-weekly Sunday “sponsored content” series in the paper focusing on his vision of SanTana.”
Lobel said he expects there will soon be an auction for Freedom’s remaining assets: two newspapers and real estate surrounding the news organization’s operations.
Besides Harrah and Tribune, current Freedom CEO and Publisher Rich Mirman said that he is trying to put a local investor group together to bid for the Register and Press-Enterprise. Other rumored parties interested in bidding include Gannett Co., publisher of USA Today, and L.A. billionaire Eli Broad.
Tribune and Freedom Communications have been involved in a heated legal battle over the Times’ distribution of Register newspapers, according to the Register. Their relationship imploded last year after Tribune filed a lawsuit in state court claiming the Register failed to pay $4 million for its services. The case will now be handled by the federal bankruptcy court.
Despite the feud, Tribune could create a profitable Southern California newspaper monopoly by acquiring the Register and Press-Telegram and gaining big economies of scale.