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Post-Dispatch is at center of lawsuit, bankruptcy filing

This article first appeared in the St. Louis Beacon, Dec. 5, 2011 - Representatives of the union representing St. Louis Post-Dispatch employees say Lee Enterprises' effort to refinance debt will not affect its collective bargaining agreement. But they are cautious about how higher interest rates could impact operations.

Lee Enterprise, the parent company of the Post-Dispatch, announced on Friday it had come to an agreement with almost all of its creditors to reconfigure nearly $1 billion worth of debt. A news release  stated that the plan would extend the date the debt comes due until at least December 2015, as opposed to next April. Among other things, Lee Enterprises will have to pay a higher interest rate on the debt.

In addition, Mary Junck, chairman and chief executive officer for Lee, said in a statement that implementation of the plan will "require a favorable, voluntary, prepackaged Chapter 11 process to bind the remaining minority of non-consenting lenders to the terms."

"While such a filing falls under bankruptcy laws, it differs significantly from most such filings because it preserves interests of our current stockholders and all other parties," Junck said. "In our case, the process will simply provide a favorable legal framework for implementing the pre-negotiated refinancing on an expedited basis while business continues as usual with no impact on employees, vendors and customers."

Carl Schmidt, CFO for Lee Enterprises, said in a statement the company plans to initiate the "voluntary pre-packaged" Chapter 11 filing on or about Dec. 12. Such a move is necessary, he said, because the company's ability to pay out the last 6 percent "of non-consenting lenders under our credit facility was limited, making the use of the prepackaged process necessary."

"This process is expected to have no adverse impact on company governance or operations," Schmidt said. "Immediately upon filing, the company will request authority to pay all suppliers and other vendors without delay, which is commonly approved in similar situations. All our digital and print products will be published as usual and no employees will be impacted. We expect to complete the restructuring process quickly and without disruption to our business, likely in 60 days or less."

David Lander, an attorney for Gallop, Johnson & Neuman, L.C., which is not involved in the suit, said there are multiple spectrums of bankruptcies. One end, he said, occurs when a company doesn't have "deals with anybody and everyone hates one another and you come into the court and there's nothing but fights." That's not what occurs, he said, in a "prepackaged" bankruptcy.

A prepackaged bankruptcy's "technical definition is you sent the ballots out before the bankruptcy and you have the ballots back," Lander said. "More often, it means that everyone knows what they're going to do. We can't get the 99 or 100 percent or whatever we need. So we're going to go into bankruptcy and very quickly send out a plan and disclosure statement as quickly as the process will allow and then get them back. And bankruptcy magic does work in that situation."

"It certain ways, it make them a healthier company," Lander added. "And so that's good for the employers and the employees and everybody. It looks like they're going to avoid default and make the restructured payments over a reasonable period of time."

Union Reacts

Many Post-Dispatch employees are represented by the United Media Guild, the largest of the unions at the newspaper. Shannon Duffy, the business representative for the Guild, said in a telephone interview that bankruptcies can be disruptive to union contracts.

But he said he's received assurances "based on reports coming out of Davenport" that the plan will "have no impact — none — on the collective bargaining agreements currently in place at the P-D."

"I'm pretty confident for our members it will be business as usual," Duffy said, adding that the Guild's attorneys are looking into the plan.

In a statement posted on its website, Guild Treasurer Jim Gallagher said "if all goes as Lee plans, our Guild contract will survive."

"If Lee planned to try to change it, they would have contacted us by now," said Gallagher, who is a business writer for the Post-Dispatch. "They know that an effort to change that contract through bankruptcy would push this deal well, well beyond 60 days."

But Gallagher also added "the higher interest payments will keep Lee focused on cost control, which means tight budgets, possibly for years to come." And Duffy said he shares Gallagher's concern.

"In the newspaper industry, we've seen corporations cut their way to profitability," Duffy said. "Higher interest rates could definitely lead to more cost-cutting, which is of great concern for us and for our members."

Junck said in a letter to employees that although the refinancing "will require Lee to pay higher interest rates, it and our strong cash flow will keep Lee on solid financial footing as we continue reshaping our company for long-term growth by expanding our digital platforms, building audiences, driving sales and improving our balance sheet."

Lee owns or has a joint interest in 52 daily newspapers, and it operates roughly 300 specialty publications. Dan Hayes, a spokesman for Lee Enterprises, said in an e-mail there was no plan to sell off assets to reduce debt. He also said the plan would not have any effect on retirees.

And Duffy said it was unlikely Lee would sell the Post-Dispatch to pay off its debt.

"Lee incurred an awful lot of debt when it bought Pulitzer," Duffy said. "So that has been a weight around its neck — that debt — for quite some time. They have paid down quite of bit of debt, and they've been able to do that because Lee has a very good, very positive cash flow."

"The ability to pay down debt comes from the cash flow," Duffy added. "And the cash flow comes from all the revenues produced at the Post-Dispatch.

Retirees Sue

Meanwhile, in a separate legal action, a dozen former Post-Dispatch employees who accepted an offer for early retirement in 2007 are suing the paper for fraud.

Staci Yandle, an attorney for the plaintiffs, said in an interview that the plaintiffs were "misled" by the management and the paper into retiring early based on the promise of paid health insurance benefits for life.

"That was a specific reference that was made in the incentive package," Yandle said. "And in fact, that was the case for approximately two years. And then last November, they were notified that 'Oh no, we're reneging on that. You're now going to have to pay 100 percent.'"

"Basically for these people who've been there for years, the major incentive for them to accept the early retirement and buyout was the medical coverage and health insurance for life," she added. "As you can imagine, that's a major incentive for anybody in this day and age."

The lawsuit, which was filed Monday, names the Post-Dispatch, president and publisher Kevin Mowbray and human resources director Astrid Garcia as defendants. The suit includes claims for fraudulent inducement and negligent misrepresentation. The plaintiffs are seeking compensatory and punitive damages.

The plaintiffs are: Rayburn Jordan, Melinda Krummrich, Mary Delach Leonard, Samuel Leone, John Lindstead, Linda Lockhart, Odell Mitchell, Jr., John Naunheim Jr., Carolyn Olson, Kathleen Richardson, Suzanne Tarrant and Larry Williams. Lockhart and Leonard currently work for the Beacon.

In an e-mail to the Beacon, Post-Dispatch spokeswoman Tracy Rouch said the paper "believes there is no basis for these allegations and that we will be vindicated in court."

Hayes, the Lee spokesman, declined comment on the suit.

Filed Stamped Petition

Jason Rosenbaum, a freelance journalist in St. Louis, covers state and local government and politics. 

Jason is the politics correspondent for St. Louis Public Radio.

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