Living In a No Paper Town, Part One

As a founding editor of the Middletown Eye, I spent three years covering meetings and events in Middletown, offering a perspective not found in the local newspapers.  For the past year, I have refrained from writing for the Eye as I learned to understand my duties on Middletown's Board of Education.  I found that I missed writing, and with this commentary, I hope to signal a regular return to this site.

COMMENTARY

The following piece is a commentary on the future of hometown news.  The Middletown Press, through its parent organization, is once again in Chapter 11 bankruptcy.  This two-part commentary explores the basis of that bankruptcy, and the effect it may have on Middletown.  Today's post explores the complex ownership of the Press, and the reasons why a company which is losing money on its newspaper investments, might willingly re-purchase it after it has restructured financially once again.

PART ONE - Who's Your Daddy? 

When does making a bad investment make sense?  Apparently when you buy a struggling media empire that you already own.

 In July 2011, the Journal Register Company, which had recently emerged from bankruptcy proceedings, was purchased by hedge fund manager Alden Global Capital, LLC.  Alden Global Capital formed Digital First Media, a management company, to run the Journal Register and other media holdings.

 

Last week, Digital First Media, which promised to take its newspapers into a glorious "digital first" future, announced that the Journal Register, parent of the Middletown Press, was headed back into Chapter 11 bankruptcy to allow financial restructuring.  This restructuring was in preparation for a potential sale.  The "stalking horse" bidder is  21st CMH Acquisition Co., an affiliate of funds, managed by Alden Global Capital.  Alden Global Capital is the Journal Registrar’s parent and its largest creditor.
 

Yes, that means the current owner could sell the restructured company to itself.   Others feel Alden wants out of the newspaper business.
 

This fancy bit of financial cannibalism may seem entirely too complicated to understand by mere mortals like you and I, but it seems to make sense to reclusive Alden Global Capital CEO Randall Smith, who has been called “the grandfather of vulture capitalism.”
 

More Than Meets the Eye   

In a revealing article in The Guardian,  Michael Wolff explains there could be more to this bad investment than meets the eye.  Wolff explains that distressed-debt investing is “not about building business, or even saving them. It's about jockeying for position and improving your deal.”
 

In my understanding of these leveraged deals, the investor claims to be restructuring a company to make it more efficient (for illustrations see Matt Taibbi’s article on Bain Capital in Rolling Stone), but in reality, it loads down the struggling company with the enormous debt from money borrowed by the investor to buy the company.  
 

As Wolff explains, the investor is both “borrower and lender,” leaving it in the position of “maximizing your leverage and the ability to self-deal.”
 

Wolff concludes that this new deal has nothing to do with building a sustainable newspaper business with a bright digital future, and everything to do with squeezing concessions from “employees, pensions, management and lesser debt holders.”  

 You've Worked Hard, Now Work Harder 
 

Not good news for past and present employees of the Middletown Press.  Nor for readers who have already noticed the diminished capacity of the once-respected daily.
 

In a press release, the Journal Register offered this less-than-comforting advice to a “frequently-asked question” by employees:
 

“What Happens To My Job After The Sale Is Complete? 

  That decision will be made by the ultimate purchaser. As always, the best way to secure our jobs is to keep doing a great job.”  

And, no doubt, doing a great job with fewer resources.    

Of course, the ultimate purchaser could likely be the current owner, but in the meantime the Journal Register will work to shake off creditors, including the State of Connecticut, to which it owes $4.3million (that’s you and me, kid).  

 Shedding creditors, of course, means that people owed money by the Journal Register will not likely be getting all, if any, of it back.   In that regard, JR group editor Matt DiRienzo is none-to-reassuring when he advises, in his blog (http://connecticutnewsroom.wordpress.com/) addressed to colleagues, that pensioners, and future pensioners and their pensions are safe.  

 Here's what DiRienzo writes: “Myth #3 – Journal Register employees will lose their pensions.
 

Again, this is just me talking, but the Pension Benefit Guarantee Corp. covers the past and present JRC employees who have pensions, regardless of what happens in the bankruptcy process. No one’s retirement is at risk…”
 

He fails to warn that the Pension Guarantee Corporation only covers defined pension plans, not 401K plans, and that it has limits, covering current pensions for those 65 and older up to $54,000.  As Mary Williams Walsh of the New York Times warns:  “People who have been promised richer benefits, or who are younger than 65 when their plan fails, have their benefits reduced, sometimes sharply.”    

Maybe DiRienzo knows something we don’t.   

Should Alden Golden Capital be able to shed pension liability in the process of bankruptcy, it could mean millions more on their side of the ledger, improving their position in any deal.    

Does someone want to invoke the wonders of the free market?    

No More Paper To Fold    

This is not a story about saving newspapers or creating a golden, digital-first future, it’s a story about ruthless moneymaking, lurking in the shadows just this side of the law, taking advantage of loopholes and destroying potentially profitable companies for personal gain.  

It's a story of what's at the root of America's financial problems.  We're no longer a country where capitalists invest in companies that make things.  We're a country where capitalists make money on deals, many of which depend on destroying companies that make things.
   

The result will likely be creditors who are left empty-handed, news organizations which will remain strapped and immobilized and, most predictably, Middletown, and other communities without a print version of their daily newspaper, unless that newspaper becomes so devalued that it falls into the hands of a truly independent publisher who doesn't have to worry about corporate debt.    

MONDAY: Part 2 - Empty Honor Boxes