Freedom execs defend bankruptcy plan

IRVINE, Calif. — Two executives from Irvine, California-based Freedom Communications, parent of The Free Press, this week defended the company’s bankruptcy reorganization plan — which has been criticized by a former chief executive as “wicked and immoral” — and said they expect to complete the process by June 2010.

“We are making progress with the effort to restructure the company through the Chapter 11 filing,” said Freedom Chief Executive Burl Osborne during a conference call with a group of Freedom reporters. It was the first time officials at Freedom, parent of The Orange County Register, have discussed the reorganization plan since the company filed for bankruptcy Sept. 1.

Freedom filed voluntary bankruptcy after working out a prepackaged deal with its lenders. Under the plan, the banks would get a 98 percent stake in the company in return for reducing the company’s debt from $770 million to $325 million. Existing shareholders — members of the founding Hoiles family and two private equity firms— would get a 2 percent interest in the restructured company and the opportunity to buy 10 percent more.

The unsecured creditors committee, however, called the plan the product of “an unholy alliance” between the banks and the current board of directors. They say the plan offers creditors just $5 million of the of $300 million Freedom says they are owed.

Freedom Chief Financial Officer Mark McEachen said the plan is fair because the shareholders will get no stake if the unsecured creditors do not approve the reorganization plan.

“Everyone’s interests are aligned,” he said.

In addition, he said the $300 million figure had been misunderstood. He said it represented total liabilities but that “less than $25 million” is owed to the unsecured creditors. (That does not include a separate $28.9 million legal settlement with Register newspaper carriers. The company contends the bankruptcy filing voided the settlement.)

“That number, that ratio of $5 million to less than $25 million is a lot better recovery than in usual recoveries,” McEachen said.

Rob Feinstein, attorney for the unsecured creditors committee, said he took the $300 million figure from the company’s bankruptcy filing.

“If the numbers work out better than that, great,” he said.

Feinstein, however, said it was unfair to give the unsecured creditors less then they are owed and then make any payment contingent on the existing shareholders retaining a stake in the company.

“Creditors are impaired all the time, but you don’t impair the creditors and give more to the shareholders,” he said.

Among the unsecured creditors are about 100 highly-compensated current and former executives and their survivors who are owed about $17 million in pension money. The company cut off those pension payments as part of the bankruptcy.

Osborne said he was sympathetic to those who lost their pensions but that such plans often are voided in bankruptcy proceedings.

“It’s not that someone at Freedom did not like this program and wanted to get rid of it,” Osborne said.

Former Chief Executive Alan Bell, who is leading an effort to recover the pension money, accused the company of needless cruelty. He said these people worked hard, believing that they would be paid pensions.

McEachen said Freedom is not currently shopping the company and has declined several offers by what he called “bottom feeders.”

The unsecured creditors committee has asked the bankruptcy court in Delaware for permission to seek buyers or better alternative proposals.