Home News Local News Observerís parent company files for protection from bank
Observerís parent company files for protection from bank
Dispute is over loan's interest rate and terms
BEND — Western Communications, the parent company of The Observer, filed for Chapter 11 bankruptcy in federal court in Portland on Tuesday, citing difficulty renegotiating $18 million in loans with Bank of America.
The company will continue to operate normally as it reorganizes and creates a plan to pay its debts to the bank.
“No one likes to hear the word bankruptcy at all,” Chairwoman Betsy McCool said.
McCool’s family, which owns the company, supports the plan, she said.
“Our family business is here to stay.”
Since 2007, Western Communications has seen its revenues decline 25 percent. That, according to company President Gordon Black, is a direct result of declining advertising sales linked to the recession and Central Oregon’s real-estate challenges.
But Black said the decision to file for reorganization is due to the company’s trials with Bank of America.
“We have every intention to pay the loan back in full,” he said. “Our argument is over interest rates and terms. We’ve paid over $2 million (in penalty interest and fees) and we had to stop it to save the company.”
Western Communications holds several loans and a line of credit with the bank that paid for The Bulletin’s building and press, both of which the company began using in 2000. The company also used the loans to purchase a newspaper in Sonora, Calif.
According to Chief Financial Officer Karen Anderson, financial covenants in the loans required Western Communications to meet certain profit ratios.
The company failed to meet two of those covenants beginning in 2007, and in January 2009, Bank of America called the note and essentially doubled the interest rate on the loans from about 6 percent to 12 percent. The company eventually negotiated the rate to about 10 percent.
The bank twice agreed to put the loans in forbearance in the ensuing two years, with a default interest rate of about 9.5 percent; that additional interest and associated fees totaled about $2 million. The company also paid more than $500,000 in legal fees, appraisals and other associated costs. Anderson also noted that in 2009, at the behest of its attorneys, the company missed three payments while renegotiating with the bank but later paid them in full.
“To do what they want us to do we’d have to wreck all our newspapers and we’re not going to do it. We’re not going to do that to our employees, they’ve already done a lot,” McCool said. “If we were going to do what they wanted us to do we’d have to lay off mass quantities of people.”
Roger Hinshaw, the president of Bank of America for Oregon and Southwest Washington, did not return calls for comment.
Attorney John T. John, who represents Bank of America, also failed to return a call for comment.
Shirley Norton, a spokesperson for Bank of America, said she couldn’t speak about confidential customer information and didn’t want the case to play out in the media.
“We have tried to work with The Bulletin and help resolve their financial issues including giving them some more time,” she said. “But we don’t discuss our customers and we don’t disclose information on them.”
“They tried to work with us all right — by doubling our interest rate,” he said.
Chapter 11 bankruptcy is often called a reorganization bankruptcy. By filing the company is temporarily protected from creditors while the groups negotiate.
So far this year, 33 companies have filed Chapter 11 bankruptcy in Oregon; in total, more than 10,300 businesses and individuals have filed some sort of bankruptcy in 2011.
Al Kennedy, an attorney with Tonkon Torp in Portland, will represent Western Communications in the reorganization.
“This is the kind of case the bankruptcy code is designed to deal with,” he said. “This is a solid, operating entity with a real ... value that can be not only preserved but maximized with the use of the bankruptcy code.”
Kennedy said it’s common for Chapter 11 bankruptcies to be caused primarily by a single creditor.
Many companies that file Chapter 11 emerge from the bankruptcy and continue operating. If they fail to make their plan payments a creditor can sue or go back to bankruptcy court to move the company to liquidation in Chapter 7 bankruptcy.
Black said that won’t happen to Western Communications, which plans to pay the loans in full. What the company wants is a better interest rate and a longer term to repay the funds.
“It’s all about interest rate and term,” he said. “That’s the fight.”
Western Communications employs 385 people throughout its seven newspapers, two in California and five in Oregon including The Bulletin in Bend and The Observer in La Grande. It also owns the Nickel Ads in Central Oregon. The company’s payroll has shrunk from $15 million in 2007 to about $12.25 million today, mostly because in 2008 employees began taking furlough days and accepted pay cuts.
Other newspapers around the country have filed Chapter 11 bankruptcy in the past several years, including the Minneapolis Star-Tribune; the Tribune Co., which owns the Los Angeles Times, Chicago Tribune and other dailies and television stations; and Freedom, a company that owns the Orange County Register and other papers.
Closer to home, The Columbian in Vancouver, Wash., emerged from bankruptcy in January 2010.
Kennedy believes the reorganization will take six months.