Bankrupt Newspaper Companies Cutting 75 Percent of Debt

Thanks to the miracle of modern bankruptcy, four newspaper companies have managed to eliminate 75 percent of their debt. Alan Mutter's Reflections of a Newsosaur blog says MediaNews Group cut 82 percent of its debt, Minneapolis Star Tribune eliminated 79 percent, Morris Publishing Group cut 69 percent, and the Journal Register Co. cut 68 percent. That works out to a total of $1.9 billion, or 74.5 percent of outstanding debt, according to Mutter, a consultant who held a series of positions with newspapers and cable TV.

How did they do it? It most cases, lenders took the classic bankruptcy gamble. They converted most of their debt into equity in the new company that emerges from Chapter 11, in the hopes that it will be sold for a good profit at some point down the road. Sure, it's risky, but it's better than a guaranteed zero recovery in the event of a liquidation.

It's only halftime in the newspaper bankruptcy game. Four more cases are pending, including the giant Tribune Co. filing, in which the company is seeking to eliminate $13 billion worth of debt.

It's impossible to see how all of these companies will successfully emerge from bankruptcy and sell for a nice profit. In fact, it would be impressive if any of them make it. As Mutter notes, "advertising plunged 43 percent from a high of $49 billion in 2005 to an estimated $28 billion in 2009." Even if the economy and the jobs market revive in a meaningful way, the capacity of the newspaper business seems to have diminished for good.

The companies with the best odds of success may be the operators of smaller newspapers, who have so far managed to protect their brands from online hyperlocal sites. Even that may change over time, though.