- The Washington Times - Wednesday, April 1, 2009

WILMINGTON, DEL. (AP) - Lawyers for the Sun-Times Media Group Inc. said Wednesday the company’s Chapter 11 bankruptcy filing could result in either a restructuring or a sale.

The owner of the Chicago Sun-Times, which filed its petition on Tuesday, listing $479 million in assets and $801 million in debt, is the fifth newspaper publisher to seek bankruptcy protection in recent months.

On Wednesday, Judge Christopher Sontchi approved first-day motions in the case, allowing the company to pay employees and vendors, and to use its existing cash management system.

James Stempel, a lawyer representing the Sun-Times group, said its financial situation stems not just from the dramatic decline in advertising revenue that has plagued much of the newspaper industry, but also from the legacy left by former Chairman Conrad Black, including a contingent tax liability to the Internal Revenue Service of up to $608 million.

“That’s the most significant liability we’re looking at … It is related to the activities of what I’ll call the Black regime,” Stempel told the judge.

Black, convicted in 2007 of siphoning millions of dollars from the Sun-Times group’s predecessor, Hollinger International, is serving a 6 1/2-year prison term for fraud and obstruction of justice. Black and two other former executives, John Boultbee and Mark Kipnis, have appealed their convictions to the U.S. Supreme Court.

Stempel and James McDonough, vice president and general counsel for the Sun-Times group, said representatives of the company planned to meet with IRS officials later Wednesday to discuss the disputed taxes.

“It is likely that ultimately we’re talking about a sizable priority claim for the debtors here, notwithstanding the dispute,” Stempel told the judge, confirming that the Sun-Times group does not have sufficient cash to pay the liability.

At the same time, company officials acknowledged that the real problem they’re facing is a lack of cash.

“Cash flow is really driving the situation here; we have had some creditors knocking at the door,” Stempel said.

For 2008, the company had revenue of about $324 million, and an operating loss of about $344 million.

“The reason we’re here today is because the advertising market has declined so dramatically,” McDonough said after the hearing.

“We’ve been burdened with our legacy issues for a long time,” he added.

Stempel told the court that the company sought bankruptcy protection to preserve its alternatives, which include exploring potential financing, and a sale of “potentially all of the company’s assets.”

“There is a possibility of emerging, and that’s what we intend to do,” McDonough said after the hearing.

Meanwhile, in an effort to conserve cash, the company has eliminated a severance program for nonunion workers, sought to reject about 50 pre-bankruptcy settlement agreements with employees, will stop funding nonunion COBRA benefits, and has ordered one-week unpaid furloughs for some of its 2,170 employees, attorney David Agay said.

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