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The Sun-Times has filed for protection from creditors under Chapter 11 of the federal bankruptcy code. (Tribune photo by E. Jason Wambsgans / May 18, 2008)
Sun-Times Media Group Inc., reeling from a painful revenue decline and tax liabilities that date back to the looting of the company during the tenure of former CEO Conrad Black, disclosed Tuesday that it has filed for protection from creditors under Chapter 11 of the federal bankruptcy code.
The publisher of the Chicago Sun-Times and other Chicago-area papers emphasized that it will continue to operate its newspapers and online sites as usual "while it focuses on further improving its cost structure and stabilizing operations" during the Chapter 11 financial reorganization.
Tuesday's filing can't be characterized as a surprise. Many observers have marveled that the company has been able to stay on its feet as long as it has, given the pressures it faces.
The bankruptcy comes on the heels of a proxy fight that led to the ouster earlier this year of almost all of Sun-Times Media's former board members, and the subsequent exit of CEO Cyrus Freidheim, the turnaround expert brought in two years earlier to revive the company's fortunes.
Black and Radler were eventually convicted on criminal fraud charges and jailed, but the financial fallout from their actions has been an additional burden as Sun-Times Media fought to stay viable in a newspaper industry that has seen its century-old financial model upended.
Like other newspaper companies, Sun-Times has slashed repeatedly at its staffing levels in order to reduce costs, as ad revenues continued to dwindle because of recessionary pressures and an ongoing migration of advertisers' spending to less-costly Internet platforms.
Left-over issues from the Black era also played a role. Sun-Times Media recently paid $21 million to settle a lawsuit filed by a Canadian company that claimed Black deceived it when it purchased Canadian newspapers from the Chicago holding company several years ago. And although some tax claims from the company's financial footwork during the Black era have been resolved, others linger.
"Unfortunately," said Jeremy Halbreich, Chairman and interm CEO of the company, the "deteriorating economic climate, coupled with a significant pending IRS tax liability dating back to previous management, has led us to today's difficult action."
Sun-Times executives, he added, "firmly believe that filing for Chapter 11 protection and exploring the potential sale of assets or new investment in the company offers us the best opportunity to protect our respected media properties for the long term."
In seeking the shelter of Chapter 11, Sun-Times Media joins Chicago-based Tribune Co. -- the much larger media holding company that prints the rival Chicago Tribune daily -- which entered bankruptcy in December.
Tribune is being buffeted by the same negative industry trends that have hit Sun-Times Media, to be sure.
But Tribune's Chapter 11 filing was sparked not by operating losses, (it remains profitable by some measures) but rather by an inability to keep up with heavy debt payments born out of the company's highly leveraged buyout in late 2007.
Real estate mogul Sam Zell led the LBO that took Tribune private, but he and the other investors failed to foresee the extent to which Tribune's once voluminous cash flow would weaken as industry conditions eroded.
In recent months, the one-two punch of structural change and economic decline has caused some papers to simply fold, as the Denver-based Rocky Mountain News did recently; or to go to a much-diminished, website-only format, as the Seattle Post-Intelligencer has opted to do.
Chapter 11 filings remain relatively rare in the newspaper business, although Yardley, Pa.-based publisher Journal Register has taken that path. In Southern California, the owners of the San Diego Union-Tribune recently took the unusual option of selling the financially stressed paper to private-equity interests.
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