One Investment Firm Plays Role in 3 Biggest Newspaper Bankruptcies

After I reported that several distressed newspaper companies may soon be owned by banks and other creditors, a tipster said I was on the right track but undershot the mark: a single New York investment firm — Angelo, Gordon & Co. —  is a lead secured creditor in the bankruptcies of Tribune Co., Philadelphia Newspapers and The Star Tribune in Minneapolis.
News accounts and court records confirm Angelo, Gordon’s role in all three proceedings.

The Star Tribune has agreed to hand control of the company to secured creditors and a new board of directors of their choosing, on which Angelo, Gordon will doubtless be represented. And should ownership of Tribune Co. and Philadelphia Newspapers ultimately pass to secured creditors as well, Angelo, Gordon would have an ownership role in metros in three of the nation’s six largest cities — Los Angeles, Chicago and Philadelphia — as well as in Minneapolis, Baltimore, Orlando and Fort Lauderdale.

Who is this company and why its sudden interest in the business?
A call Wednesday to Bradley Pattelli, lead banker on several (if not all) of these deals, was not returned. I will add to this if I hear back later.
But Angelo, Gordon’s Web site is clear that it is a “specialist in nontraditional investments” — especially distressed debt.
This January, in a non-bankruptcy transaction, American Media Inc., publisher of The National Enquirer and The Star, handed ownership to a creditors group that included Angelo, Gordon. While longtime National Enquirer executive David Pecker retains the titles of president and publisher, Pattelli is part of a new four-member board of directors that actually controls the business. 
Angelo, Gordon’s site says it has $15 billion under management and argues that down markets provide good opportunities for its approach. The firm has been in business for roughly 20 years, and its principals, John M. Angelo and Michael L. Gordon, both came out of the now-defunct L.F. Rothschild firm and the leveraged-buyout boom of the 1980s.
In newspaper bankruptcies, like others, there are three main groups: owner-debtors who file for bankruptcy protection, secured creditors who have an ownership claim if the company defaults, and unsecured creditors (like suppliers) who haven’t been paid and likely will recover pennies on the dollar.

The bankruptcy judge sorts out the best and fairest solution. In any scenario, much of the debt is wiped out. Sometimes current owners retain a role; other times the company goes to the secured creditors, who oust management and install their own.

A specialist firm like Angelo, Gordon can buy secured debt at a substantial discount from an original bank lender (which may otherwise face the possibility of losing nearly the full amount of the loan). It employs various complex debt structures and tax considerations, along with potential “hedges,” to maximize its chance of a return over time.
To my knowledge, there are no regulations on what kind of entities can own newspapers or limits on how many major publications a single ownership group can control. In fact, the newspaper industry is not especially concentrated compared, for instance, to soft drinks, in which Coke and Pepsi together control almost 75 percent of the U.S. market.
The Chicago Tribune recently reported that negotiations “in early stages” would transfer control of Tribune Co. from Sam Zell to senior creditors. In the case of The Philadelphia Inquirer and the Daily News, in which CEO Brian Tierney and fellow investors hope to retain control, proceedings have not yet reached the stage of determining ownership.
Under Journal Register Co.’s newly approved plan to emerge from Chapter 11, ownership will pass to a creditors’ group, but it looks like a recently installed management team will stay for now.
Several other major newspaper groups — McClatchy and Lee — find their stock trading at less than $1 a share. Credit rating agencies have recently predicted they will ultimately default. So there is the prospect of additional newspaper company bankruptcies and more opportunities for Angelo, Gordon and similar firms.

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