On the ropes

Morris seeks way out of financial mess

By Greg Rohloff
The Amarillo Independent

While Morris Communications remains tight-lipped about its plans for extricating itself from the financial tangles that have pulled down other large media companies, two more newspaper companies have filed their Chapter 11 reorganization papers, issuing perfunctory "business as usual" statements.

Photo by George Schwarz Owner Woes: Morris Communications, parent of the Amarillo Globe-News, is trying to extricate itself from its financial problems.

And while Morris Communications, parent company of the Amarillo Globe-News, works through the process, documents already filed show a possible path for Morris, according to two consultants who have looked at Securities and Exchange Commission filings at the request of The Amarillo Independent.

At this point, no single path is certain, regardless of the similarities with other newspaper companies that have filed for voluntary reorganizations, the two this week being Philadelphia Newspapers LLC, publisher of the Philadelphia Inquirer and the Philadelphia Daily News, and Journal Register Co., based in suburban Philadelphia.

A slowing national economy has pinched advertising revenues not only for newspapers but also other media, causing once-thick magazines to shed staff and become much thinner, or be placed up for sale, triggering a buzz of the day. Last week the buzz was that even Playboy Enterprises could be sold lock, stock and bunny tails.

But what is apparent in the SEC filing of Feb. 2 is a move to protect Morris Communications assets that are held by various subsidiary companies.

K. Scott Van Meter, a managing director of consulting firm LECG's Houston office, said the most likely scenario for Morris Communications in the firm's SEC filing is to offer stock through a newly created company, called Questo, and to raise enough money to meet the terms of the credit agreement that has weighed down the company.

Additionally, a second new company, named MPG, will be the new parent company of Morris Publishing Group LLC, which now is the parent company of the newspapers.

But before anyone jumps to conclusions about what may happen with the parent of the Globe-News, Van Meter, who has been a consultant on corporate bankruptcy matters for more than 20 years, said the creation of the two entities could have several meanings for Morris Communications. For one, Morris Publishing could be sold as a stand-alone business unit; it could be isolated from other Morris-owned entities for a bankruptcy filing or the new company could be needed to meet requirements of the credit agreement with a group of banks led by JPMorgan Chase Bank.

As for Questo becoming the new parent company of the newspaper, magazine, book, billboard and radio empire, Van Meter said Questo's structure is important to understand. It was set up with 3 million shares of common stock, 27 million shares of nonvoting stock and 500,000 shares of preferred stock.

Such an arrangement could be done for estate planning purposes, Van Meter said, or it could be done with an eye to selling shares in Questo, with the family retaining control of the company while raising money by selling the non-voting shares.

Sharing a similar take on the situation was Brian L. Davies Jr., Boston managing partner of ACM Capital, based in Boston and Miami, an investment and advisory firm specializing in assisting companies in transition or distress.

"The goal is to isolate the troubled company for a bankruptcy or shut down," Davies said in a brief analysis in an exchange of e-mails. "So they form a new company and transfer the asset you want to protect. The other subsidiary with cash is already protected as a separate legal entity. You make it look good by saying you are doing a restructuring with different divisions becoming separate legal entities under the standard holding company parent. In reality you are getting all the good assets out of the dying corporation."

Davies cautions that Morris is not necessarily on that same path simply because it has hired financial advisor Lazard Freres & Co. and Chicago law firm Neal, Gerber & Eisenberg, which had assisted in the Tribune Co.'s reorganization filing.

Such advisers should fully explain the ramifications of filing a reorganization, which would mean taking on additional expenses for all the additional accounting needed for the filing, plus assuming the costs of advisers for the banks that hold the credit agreement, Davies said.

Before deciding on a Chapter 11 reorganization, the advisers must weigh the cost of such a plan with the savings that would be brought about by shedding liabilities.

The adviser could suggest a negotiated restructuring without a bankruptcy proceeding, he said.

Morris defaulted on its February loan interest payment of $9.7 million, pushing payment back to March 3. Its debt stands at about $145.5 million, which, under terms of the agreement, must be settled by showing sale of assets to cover that amount no later than May 30. In December, the company closed on a sale of $110 million in stock of cable company Mediacom Communications it had held as an investment.

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Posted: Feb. 26, 2009