A prominent small media holdings group, GateHouse Media, has filed for Chapter 11 bankruptcy protection, according to a bankruptcy lawyer affiliated with the case. This is an interesting case because it is part of a company merger that will make GateHouse Media part of a larger new company, after GateHouse itself exits a Chapter 11 filing that has been prepackaged in advance.
Bankruptcy Lawyer Explains the Deal
A prepackaged Chapter 11 is an uncommon filing in which all the major creditors have agreed in advance to approve the Chapter 11 restructuring; in this case, the majority of GateHouse’s debt is held by a company that now also owns a major share in GateHouse itself. If that sounds confusing, says the bankruptcy lawyer, it’s no surprise; it’s an unusual arrangement even in the byzantine world of corporate business. The thrust of the deal is that GateHouse will come out of its Chapter 11 and merge with another, similar company, both of which own bundles of small local media outlets, and become a new company, called New Media. The new company will be worth an estimated $390 million, and with the Chapter 11 filing coming in a prepackaged deal, it should transition into a viable profit-maker right off the bat, says the bankruptcy lawyer.
A major way GateHouse was able to get this prepackaged deal was by offering to turn debts owed to their creditors into equity in the new company, says the bankruptcy lawyer. This arrangement is unique in that one does not normally think of a bankrupt company being worth owning equity in, but in the case of GateHouse, where they are about to become part of a much bigger corporation, it makes sense. Creditors are expected to get about 40 cents on the dollar for the arrangement.