Freedom Communications Inc., parent of The Orange County Register, expects to emerge from bankruptcy as a company valued at $400 million to $500 million with a debt of $325 million, according to a reorganization plan filed in Delaware court.
As part of its efforts to reduce expenses, Irvine-based Freedom said it will close The East Valley Tribune, its Pulitzer-prize winning paper in Mesa, Ariz., by the end of this year. The paper has struggled for years against the Arizona Republic, the dominant paper in Arizona, as well as the loss of advertising revenues and circulation that has plagued the entire newspaper business.
Freedom also expects to reduce payroll and benefits by 5 percent next year by cutting staff companywide. The company has about 5,100 employees at 33 dailies, 77 weeklies, eight television stations, several magazines and specialty publications and in its interactive business.
Freedom entered voluntary Chapter 11 bankruptcy reorganization Sept. 1 with the agreement of most of its banks.
Under the proposed reorganization plan, the company’s debt would be cut from $770 million to $325 million. In return, the banks would take over Freedom, getting a 98 percent interest.
Current shareholders, including members of the founding Hoiles family and two private equity firms, would get 2 percent of the shares and warrants that would allow them to buy up to 10 percent.
A group of unsecured creditors who are owed $300 million would share in a total of $5 million. If they oppose the plan and it is approved, they get nothing.
The creditors include some highly-compensated retirees whose pensions were cut off and 5,000 newspaper carriers who won a $28.9 million settlement in a suit against the Register over a claim that they improperly were categorized as independent contractors instead of employees.
In a disclosure statement filed with its proposed reorganization plan, Freedom detailed the difficult financial straits that led it to file for bankruptcy.
The company said revenues declined $111 million — 13 percent — in 2008 and dropped another $115 million — 23 percent — in the first eight months of this year. Operating cash flow fell from $150 million in 2007 to $13 million in the first eight months of this year.
At the same time, the company was facing the payout on Sept. 14 of $28.9 million owed to the newspaper carriers and their attorneys.
By filing when it did, the company was able to take back the money for the carriers that had been held in escrow and include the funds among the assets in the bankruptcy filing. Attorneys for the carriers, however, claim they are still owed the money.
Although Freedom expects to lose $62.8 million in 2010 and $19.3 million in 2011, the reorganization plan anticipates the company will make an $11.4 million profit in 2012 on revenues of $595.9 million.
“The filing of the plan of reorganization and disclosure statement represents an important milestone in our Chapter 11 case. We are especially pleased that we were able to reach this key step in our restructuring process in just two months,” said Burl Osborne, Freedom’s chief executive, in a statement released by the company. “It brings us closer to successfully completing our debt restructuring and positioning the company for future opportunities and challenges that lie ahead in the rapidly changing media industry.”
Hopes for a quick conclusion to the bankruptcy, however, may be hindered by the unsecured creditors, who feel the company’s $5 million take-it-or-leave-it offer is far too small considering the $300 million they are owed.
They argue that, at the very least, the Hoiles family and other current shareholders should not get 2 percent of the company since in a typical bankruptcy, the value of existing shares is wiped out.
The employees whose $17 million in pensions were cut off — about 100 higher-paid current and retired executives and their survivors — feel it is unjust that they should be deprived of retirement funds after contribuing to the company for so many years.
“The very people who built this company and made it strong are the ones most affected,” said Alan Bell, former Freedom CEO. “I think it is wicked and immoral to do this to people who did so much.”
Filing of the proposed reorganization plan and disclosure statement were key steps in the bankruptcy. Still to come: U.S. Bankruptcy Judge Brendan Lenihan Shannon must approve the disclosure statement, which is an explanation of the proposed plan. The plan then must be sent out to the creditors for a vote before the company can complete its reorganization and exit bankruptcy.
Earlier stories on the Register and Freedom Communications ..
Five Orange County hotels received AAA’s top rating of five diamonds, the automobile club announced Friday.
Weekly scheduled charter air flights between Orange County and the New York City area on a luxurious Gulfstream IV private jet will begin Dec. 3. The operation, called Safari Airlines, will fly each Thursday from the Private Jet Terminal on Campus Drive at John Wayne Airport to the New Jersey Private Jet Terminal at Teterboro Airport, just outside of New York City. Return flights will be each Sunday, beginning Dec. 6. The jet has seating for 10 people. Initial cost for flights will be $5,950 each way. Passengers will enjoy cocktails, gourmet meals and in-flight entertainment on Apple laptop computers and Bose headphones. For more information, go to the 
