Freedom Communications, the bankrupt owner of the Colorado Springs Gazette, has won court approval of a reorganization plan.
Judge Brendan Shannon of the U.S. bankruptcy court in Wilmington, Delaware approved the plan that had been crafted by attorneys for and its secured and unsecured creditors.
The plan represented a significant victory for the unsecured creditors, who had originally been offered approximately two cents on the dollar.
Under the original plan, the controlling Hoiles family would have retained some equity in the company, as would have the Blackstone Group and Providence Equity Partners. Secured creditors, led by JP Morgan Chase, would have substantially reduced the company’s secured debt, and would have received most of the company’s equity.
Under the amended plan, all of the company’s equity would belong to the secured creditors.
Unsecured creditors may receive as much as 37 cents on the dollar. The company’s secured debt would be reduced from about $770 million prior to the bankruptcy to $325 million.
Lawyers for the unsecured creditors, who had threatened to sue the company, Blackstone, Providence, and the Hoiles family, alleging that the 2002 partial recapitalization that loaded the company with secured debt constituted a “fraudulent transfer.”
All parties to the transaction, the attorneys claimed, knew or should have known that the company would not be able to service the debt thereby incurred, and by agreeing to it committed fraud.
The prospect of such a suit may have induced the secured creditors to sweeten the offer.
Reuters reported that attorneys for the unsecured creditors were pleased with the deal.
“It’s a radical transformation,” said Robert J. Feinstein of Pachulski Stang Ziehl & Jones, which represented unsecured creditors, of the amended plan. “It’s a huge victory.”