SAN FRANCISCO — The company that owns The Orange County Register in California and dozens of other newspapers on Tuesday became the latest publisher to seek bankruptcy protection, driven into financial despair by a staggering drop in advertising revenue.
The filing by Freedom Communications Holdings Inc. was part of a prepackaged plan approved by a majority of the company's lenders.
The consensus on the proposed restructuring should minimize the haggling that can bog down bankruptcy proceedings, although the plan is still expected to take at least four months to gain court approval.
"Reaching this agreement with our lenders provides us with an orderly process to realign our balance sheet with the realities of today's media environment," said Burl Osborne, a newspaper industry veteran who became Freedom's chief executive two months ago.
Under the proposed restructuring, Osborne said the family and two investment firms that own Freedom would be left with no more than a 2 percent stake in the company. The rest of the stock would go to a group of 27 lenders owed nearly $771 million. The lenders, led by JPMorgan Chase & Co., would forgive most of that debt in return for control of the company.
JPMorgan also is part of a lending group that gained control of another troubled newspaper publisher, the Journal Register Co., after it emerged from bankruptcy protection last month.
There will be no immediate changes in Freedom's management, although a new CEO and board could be put in place after the company emerges from bankruptcy protection.
Freedom, in a Chapter 11 filing made in U.S. Bankruptcy Court in Wilmington, Del., listed debts of $1.08 billion and assets with a book value of $757 million and "a market value substantially less than that amount."
The terms of the reorganization are a bitter pill for the clan that has controlled Freedom for the past 74 years.
The descendants of Freedom founder R.C. Hoiles launched the bankruptcy case with a 52 percent stake spread across more than 60 family members and trusts. The remaining 48 percent is held by Blackstone Group LP and Providence Equity Partners, which paid about $450 million to buy out some of the family members in 2004.
Freedom's existing shareholders also will get warrants that can be exchanged for another 10 percent of the privately held company's stock, Osborne said, depending on how well the business bounces back during the next five years.
Freedom Chairman Thomas Bassett, part of the family ownership, declined to comment on the bankruptcy filing late Tuesday, saying he and his relatives had decided to leave the talking to the company's management for now.
With most of its debt off the books, Freedom believes it can still thrive. "It is still a good business with a good future," Osborne said in an interview. "We just had too much debt and too little cash flow."
Although the company expects to lose more than $80 million this year because of various one-time accounting costs, Freedom is still generating positive cash-flow from its ongoing operations, Osborne said.
Freedom has been struggling to bring in enough money to repay its debt for the past year, triggering cost-cutting measures that required workers to take unpaid leave and swallow an across-the-board 5 percent cut in wages.
The Irvine, Calif.-based company employs 8,200 people in 15 states, including about 3,200 contractors. No layoffs are envisioned as part of the bankruptcy reorganization, although that could change if the economy remains in a deep funk, Osborne said.
In an attempt to avoid a bankruptcy filing, Freedom negotiated a reprieve from the restrictions governing its loans four months ago. But it still couldn't find relief from a recession that continued to dry the ad sales that generates most of its revenue.
It's a story that has become all too familiar for newspapers as the worst economic downturn since World War II exacerbates the trouble that the industry already was facing as both readers and advertisers increasingly shun print editions for online alternatives.
Freedom is at least the 10th newspaper publisher to file for bankruptcy protection over the past year. The other publishers still in bankruptcy proceedings include the owners of the Los Angeles Times, Chicago Tribune, the Star Tribune of Minneapolis and The Philadelphia Inquirer.
Other newspapers, including the Rocky Mountain News in Denver and The Seattle Post-Intelligencer, have closed their print editions without even trying to work things out in bankruptcy court. The P-I continues as a Web-only publication.
The financial upheaval is turning control of more newspapers over to lenders.
Freedom's roots date back to 1935 when Hoiles, a one-time printer's apprentice, moved from Ohio to Orange County, where he bought what was then known as The Santa Ana Register in 1935. The newspaper, then located in a largely undeveloped suburbs, would become the bully pulpit for Hoiles' libertarian views and religious principles, as well as the foundation of tremendous wealth that has been passed along to his heirs.
As Orange County turned into a large metropolitan area with Disneyland attracting millions of visitors each year, the Hoiles newspaper emerged as one of the biggest dailies in the country.
The Register's success led to an expansion of the company's holdings to include 30 daily newspapers and dozens of weeklies as well as eight television stations in New York, Texas, Florida and three other states. Besides the Orange County Register, Freedom's other newspapers include The Gazette in Colorado Springs, Colo., and the Odessa American in Texas.
The involvement of Freedom's TV stations could drag out the bankruptcy proceedings because the Federal Communications Commission also must approve any ownership change.
Freedom's newspaper circulation has been sinking along with its revenue.
The Register's weekday circulation averaged just under 231,000 in the six-month period ending March 31, a 23 percent drop from four years ago when the number stood at 300,694, according to the Audit Bureau of Circulations.
As part of its turnaround efforts, Freedom brought in a new chief executive, Scott Flanders, in 2006 and ushered in a new chief financial officer three months ago.
Flanders, though, left Freedom Communications in July to become CEO of another troubled publisher, Playboy Enterprises Inc. Osborne was publisher of the Dallas Morning News for more than 20 years and served as chairman of The Associated Press from 2002 to 2007.
AP Business Writer Andrew Vanacore in New York contributed to this story.