(Reuters) – Unsecured creditors to bankrupt Freedom Communications received court approval on Wednesday to begin pursuing an alternative reorganization plan for the owner of the Orange County Register newspaper.
A bankruptcy judge granted the request of the official committee of unsecured creditors to allow its investment bankers to solicit alternative plans, according to Alan Bell, a member of the committee.
Freedom, which owns 30 daily papers and eight television stations, filed for bankruptcy in September.
Freedom’s proposed bankruptcy plan would give secured bank lenders almost all of the reorganized company’s equity and $325 million in new notes. In return, secured lenders including JPMorgan Chase & Co (JPM.N), SunTrust Banks Inc (STI.N) and Mitsubishi UFJ Financial Group Inc’s (8306.T) Union Bank of California would forgive $770 million in debt.
The proposed plan also contained a “no-shop” clause that would prevent management from seeking a plan that provides better recoveries for creditors.
The plan has enraged unsecured creditors by offering them only $5 million for their $300 million in claims. Should they vote to reject the plan, they would get nothing.
The family of R.C. Hoiles and private equity firms Blackstone Group LP (BX.N) and Providence Equity Partners, as current owners of Freedom, would get stock and warrants representing 12 percent of the new company under the proposed plan.
“‘No shops’ are designed to put creditors at a disadvantage and given all the other cruel weapons aimed at us, it was important to bring this out into the open,” said Bell, a former Freedom chief executive.
A spokesman for the company, Robert Emmers, said Freedom opposed the request to solicit an alternative plan because it does not believe a better proposal currently exists and because it would be a further drain on company resources.
He also noted that the judge said during Wednesday’s hearing he doubted the committee’s efforts would yield any significant results.
The case is In Re: Freedom Communications Holdings Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-13046 (Editing by Gerald E. McCormick) ((firstname.lastname@example.org; 1-302-993-6283; Reuters Messaging email@example.com))