With bankruptcy plan, publisher sees a second chance
The newspaper business probably hasn’t worked out as planned for the Fortress Investment Group, a New York investment firm that eight years ago began buying up local papers across the country, including about 100 in Massachusetts.
The publisher it created and controls, GateHouse Media Inc., has never made an annual profit as a public company, and last week filed for bankruptcy under the weight of nearly $1.2 billion in debt. Nonetheless, Fortress has embarked on a complicated series of moves that encompass the purchase of 33 more papers, including the Cape Cod Times and the Standard-Times of New Bedford, and a deal with creditors that would allow GateHouse to emerge from bankruptcy virtually debt free.
If all this succeeds, Fortress and its affiliates will control nearly every newspaper south of Boston, including The Patriot Ledger of Quincy, The Enterprise of Brockton, The Herald News of Fall River, and The Taunton Daily Gazette, and dominate Boston’s western suburbs, where it owns the MetroWest Daily News of Framingham, The Milford Daily News, and a long list of weeklies.
The question ahead is whether the bankruptcy reorganization would reduce the financial pressures and relentless cost-cutting that have slashed staff and significantly reduced coverage of local government, sports, and community events. In Dedham and Waltham, for example, the communities’ respective daily papers, the Transcript and the News-Tribune, were cut back to weekly publication under GateHouse.
In Plymouth, soon after GateHouse acquired The Old Colony Memorial in 2006, it sold the newspaper’s striking modern building, which was razed by the new owner and redeveloped as a Honda dealership. Many in the community saw it as an end of an era in home-grown journalism that began in 1822, when the twice-weekly paper was first published.
Richard Serkey, an elected Town Meeting member and longtime subscriber, remembers when a staff of reporters fanned out across the community, covering local boards, community meetings, and events, stuffing the paper with local stories under several bylines. Today, he said, there seems to be only one or two reporters covering the town, with stories picked up from GateHouse papers in other communities to fill the paper.
“I’m disappointed in what they’ve done,” said Serkey, a lawyer. “The amount of local content is diminishing. The quality has diminished. How much more can they cut? But this is something that’s happening at every newspaper company, I guess.”
Since the end of 2007, GateHouse has cut its employment nationwide by more than 40 percent, to just over 4,100 from about 7,200, according to company filings with the Securities and Exchange Commission. GateHouse did not break out its employment by state, but it has cut jobs in Massachusetts.
At the Patriot Ledger, for example, GateHouse eliminated another seven jobs in the newsroom earlier this year, according to employees. Fred Hanson, a reporter who is president of the union that represents editorial workers, would only say that his members are hoping the economy turns around and that GateHouse’s bankruptcy plan works.
“Once they address this debt,” Hanson said, “it hopefully should help steady the ship.”
On Cape Cod, longtime readers of The Cape Cod Times are also watching — and worrying — given GateHouse’s reputation for cost-cutting. Another Fortress affiliate, Newcastle Investment, is technically buying the paper, but GateHouse will manage the property.
When the deal to buy the Times and other local papers owned by the Dow Jones unit of Rupert Murdoch’s News Corp. was announced earlier this month, Newcastle said it had already identified $10 million in potential cost reductions at the papers.
“You’re just kind of holding your breath and waiting to see what happens,” said Wendy Northcross, president of the Cape Cod Chamber of Commerce and a longtime reader of the Times. “There really is a place for good journalism, and the people at [the Times] do a credible job. But you just expect there will be changes moving forward.”
GateHouse and Fortress executives declined to comment or did not return phone calls.
GateHouse, based in Fairport, N.Y., was formed in 2005 when Fortress Investment purchased Liberty Group Publishing, a newspaper chain based in Illinois, and immediately began a vast expansion that included the 2006 purchase of the Community Newspaper Co., a Massachusetts chain of four daily and nearly 100 weekly newspapers then owned by the Boston Herald.
At the same time it purchased Community Newspaper, GateHouse also bought The Patriot Ledger, The Enterprise, The Old Colony Memorial, and others papers from another owner. It also expanded across the nation, following what it believed was a sound strategy of buying smaller, local papers that theoretically were more financially resistant to market forces buffeting larger metropolitan newspapers, including The Boston Globe.
By 2008, GateHouse’s long-term debt had ballooned to $1.2 billion, from $300 million in 2005, according to SEC filings. Then the financial crisis hit. GateHouse’s revenues have since plunged about 25 percent. And despite slashing $150 million in costs over the past four years, the company still lost nearly $30 million in 2012, according to SEC filings.
The losses have continued. In the second quarter of this year, GateHouse’s revenue fell 5.1 percent from a year earlier, and it lost $14.1 million. Its stock, which sold for more than $20 a share after the company went public in 2006, was trading for less than a nickel before if filed for bankruptcy Friday.
GateHouse has filed a “prepackaged bankruptcy,” meaning the company reached an agreement with major lenders to restructure its debt — in this case swapping debt for ownership stakes or paying 40 cents on the dollar — and then emerge quickly from bankruptcy. Since 52 percent of GateHouse’s debt is held by Newcastle, another Fortress affiliate, that approval was almost a foregone conclusion.
Tentatively, Newcastle plans to combine the former Dow Jones papers with GateHouse after it emerges from bankruptcy, and possibly rename the company, according to Newcastle’s pre-bankruptcy filings. Jeanne P. Darcey, a bankruptcy attorney at Boston’s Worcester & Sullivan LLC, said prepackaged bankruptcies that obtain approval of most major lenders can usually be settled within 30 to 60 days.
“We don’t believe our customers, vendors, or employees will notice any change on our day-to-day operations as a result of the bankruptcy,” Michael Reed, chief executive of GateHouse, said in a statement last week. “From an operational standpoint, it’s business as usual.”
In its pre-bankruptcy filings, Newcastle expressed confidence that GateHouse will not only emerge stronger, but also be able to expand its digital business and possibly launch another acquisition spree to take advantage of low newspaper values across the country.
But such confident claims aren’t reassuring everyone.
Rob Sennott co-owned the weekly Barnstable Patriot from 1994 through 2005, when he sold it to Dow Jones. He remained with Dow Jones for another four years and said there weren’t major cuts or changes to the Patriot.
But now the Barnstable Patriot will soon have a new owner, GateHouse or its post-bankruptcy successor, and local readers wonder what will happen, he said.
“All this talk [of cuts and bankruptcy],” he said, “provokes understandable anxiety in the community.”