The new owner of the New York Daily News is mulling a possible Chapter 11 bankruptcy filing for the New York City tabloid, a source tells Media Ink.
“It is under consideration,” said a source with knowledge of the situation. “It is definitely on the table and maybe the front of the table, not a side table.”
A spokesman for the paper’s new hedge fund owner, Alden Global Capital, dismissed it as an unsubstantiated rumor.
“This is entirely false and clearly your source knows that by making up lies under cloak of anonymity,” the spokesman said.
In Chapter 11, a company continues to operate while seeking to lower its debts.
Alden bought the Daily News along with nine other dailies owned by Tribune Publishing in May, but spun off the New York tabloid into a separate entity, sparking concerns about the paper’s future.
John Heffernan, president of the New York Pressman’s Union who also heads the Allied Printing Trades Council for drivers, electricians and mailers, said “all the unions are suspicious” of the spinoff.
“We’re looking at the SEC filings and we’re worried that they are trying to get out of their pension liabilities,” Heffernan said.
Against this backdrop, negotiations over new union contracts grew heated at a meeting Wednesday between union officials and Daily News representatives.
Sources speculate that a bankruptcy could help get Alden out from under the paper’s burdensome pension obligations, variously estimated at anywhere from $20 million to nearly $100 million.
The pension liabilities are owed largely to the blue-collar pressman who print the New York tabloid and the drivers who have delivered the paper over the years.
In its heyday, the Daily News boasted a circulation of over 2 million during the week and 5 million on Sunday. Today, its paid print circulation has shrunk to only 63,000 copies a day.
Still, pension experts say that Heath Freeman, the president of Alden Global Capital, could have a tough time backing out of the paper’s pension liabilities since its Tribune Publishing unit, which owns the Chicago Tribune, the Baltimore Sun, the Orlando Sentinel and the Hartford Courant, still makes a nice profit.
Harvey Katz, a pension attorney at the law firm of Fox Rothschild LLP, told Media Ink that if a profitable company were to set up one of its struggling units as a separate company, the parent company could still be left holding the bag in the event of a bankruptcy.
“Moving it to an entity that has only losses will be set aside by the courts,” said Katz.
If the Daily News were to go bankrupt, the Pension Benefit Guaranty Corp., a federal agency responsible for defunct pensions, could end up paying only 20 cents on the dollar.
The Daily News was the sole holding from Tribune Publishing to be set up as a separate entity. It has been renamed Daily News Enterprises. The change came immediately after Alden closed on its $633 million deal in late May to take Tribune private.
Alden already owned 32 percent of Tribune’s stock so only had to shell out about $430 million for the stock it did not already own. In the process, it saddled the once debt-free Tribune with nearly $300 million in new debt, primarily from private equity investor Cerberus. The new debt also includes a $60 million loan with a lush 13 percent interest rate from another Alden-controlled newspaper company, Media News Group.
More recently, a recent ProPublica expose reported that Randall Smith, the chairman of Alden and a mentor to Freeman, had $252 million in his Roth IRA.
Tribune staffers, by contrast, recently suffered a round of voluntary buyouts for unionized journalists and non-unionized managers. And staffers have complained that Alden has not made any contributions to the 401(k) retirement plan since the deal was completed in late May.
On Thursday, Tribune said in a memo to staffers would finally begin contributing again— but not until Aug. 1. The company was not clear if there would be a “catch up” contribution for the two months it skipped since closing on the deal.