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CHICAGO Morris Publishing Group said Monday it has reached a complex restructuring deal with its creditors that will slash its debt from $415 million to $126.5 million. Though the deal has the support of its senior bank lenders and a majority of its unsecured noteholders, it likely will take a trip through bankruptcy court to finalize.

The parent of The Florida Times-Union in Jacksonville and Augusta (Ga.) Chronicle, said the deal with one group of creditors, holders of 70% of $278.5 million in senior subordinated notes paying 7%, requires that its offer to exchange those "existing notes" for $100 million in new notes with a much higher interest rate must be approved by 99% of noteholders.

If more than 1% of noteholders balk, "Morris has agreed to file a pre-packaged bankruptcy plan for the exchange of new notes for the existing notes," it said. "Simultaneously with the exchange offer, Morris Publishing will solicit consents from the holders of existing notes for the pre-packaged bankruptcy plan."

In a letter to stakeholders two weeks ago, before the definitive restructuring deals were complete, Morris executives wrote, "Not only will these restructuring transactions greatly reduce the company's total debt, they also will significantly reduce the amount of interest that we must pay to our lenders, which will free up cash flow and allow us to invest in the long-term health of our newspaper business."

In addition to the deal with noteholders, Morris reached an agreement with its senior lenders holding $136.5 million in senior secured debt. Morris Publishing said unidentified "affiliates" would pay off $110 million, leaving $26.5 million. "Thereafter, the company expects to use its available cash balances to pay off a significant portion of the remaining $26.5 million," Morris Publishing said.

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