By: Mark Fitzgerald
Unsecured creditors were in U.S. Bankruptcy Court in Long Island, N.Y., Tuesday afternoon to slow down an impending auction of Brown Publishing’s newspapers in which the only bidders appear to be a company formed by Brown CEO Roy Brown with two other top executives, and the senior lenders to the Cincinnati-based chain.
In court papers, the official committee of unsecured creditors say the court should give “heightened scrutiny” to the sale because it was Roy Brown, General Counsel Joel Dempsey and CFO Joseph Ellingham – the sole owners of “Brown Media” — who handpicked the independent director negotiating the sale of Brown Publishing, a company that owns 15 dailies, 32 weeklies, 11 dailies and numerous other publications.
Depending on the judge’s ruling, an auction for Brown Publishing could be held as early as June 28.
Brown Media has made a so-called “stalking horse” offer, the initial offer in a bankruptcy auction, of $15.3 million – for assets that would be free of debts and encumbrances. Brown’s Chapter 11 filing says the company has debt totaling $104.6 million.
Brown Publishing said its properties had a book value of $94.1 million. PNC Bank, Brown Publishing’s biggest creditor owed $70.5 million, has said it has offered $20 million for the chain.
The unsecured creditors say the auction process would leave them with nothing.
They also object that the company was shopped in a way that discouraged bidders. Brown Publishing offered itself for sale as an entire company. Information about individual and clusters of newspapers was buried in filings, the creditors says.
Also discouraging bidding is the fact that the sale would not include real estate, which Brown Publishing transferred to a separate company owned by top executives and Brown family members. The unsecured creditors complain in court papers that Brown has recently increased rents above market levels — further damping interest by potential buyers.
The unsecured creditors also assert that a speedy auction is not needed because despite Brown Publishing’s arguments that it is rapidly running out of money, it has actually outperformed its financial forecasts in recent weeks, rolling up $1.7 million in additional cash since the filing.
“A hastened sales process is not necessary and will benefit no one other than Brown Media, which is comprised of insiders, and the senior secured lenders,” the committee filing states.
The unsecured creditors want the sale put off until at least Aug. 3 to allow more time to market the Brown properties. It also objects to numerous other procedures — including one that would lock their representatives out of the actual auction.