By: Mark Fitzgerald
A U.S. Bankruptcy Court hearing on a motion by unsecured creditors to slow down the auction of Brown Publishing Co. will continue Thursday afternoon in Central Islip, N.Y.
As reported Tuesday in E&P, the official committee of unsecured creditors wants to postpone the auction, scheduled for next Monday, until at least Aug. 6, arguing the sales process deserves “heightened scrutiny” because Brown Publishing is proposing selling itself to Brown Media — a company owned by Brown Publishing CEO Roy Brown and two other insiders, General Counsel Joel Dempsey and CFO Joseph Ellingham.
Brown Media has made a so-called “stalking horse” offer of $15.3 million for the Cincinnati-based chain, which publishes 15 dailies, 32 weeklies, 11 business publication and numerous other publications. When it filed for bankruptcy, Brown Publishing said it had debts totaling $104.6 million and the properties had a book value of $94.1 million.
The unsecured creditors argue the expedited sales process favors the Brown insiders and senior lenders, and will leave them with nothing. In court papers, the creditors say a pre-bankruptcy attempt to sell the chain was configured to discourage bidders. They also noted that many of the newspapers and other properties do not include real estate, which is now leased from a company controlled by Brown insiders and family members.
But attorneys for Brown Publishing say the unsecured creditors’ objection is just an attempt to get blood from a turnip. If the company is not sold soon, they argue in court papers filed Monday, it could cease operations.
“In a blatant effort to hold the sale process hostage to gain leverage to try to obtain a recovery for unsecured creditors who are far out of the money, the committee asserts a host of concerns about the proposed sale process, none of which are supported by any evidence whatsoever,” the Brown Publishing attorneys wrote.
Brown Publishing said it cannot even pay its senior lenders, whom it calls “deeply undersecured,” anything near what they are owed.
“The value of the Debtors assets is substantially less than the outstanding amount under the First Lien Credit Agreement,” Brown Publishing said. “The Second Lien Lenders therefore effectively have no equity in the Debtors property.”
Brown Publishing’s single biggest secured creditor is PNC Bank, which is owed $70.5 million. It said in previously filed court papers that it had offered $20 million for the company, nearly $5 million more than the Brown insiders’ bid.