Heartland Publications Wins Bankruptcy Court Approval of Turnaround Plan

Heartland Publications LLC, a publisher of about 50 community newspapers, won court approval for a restructuring plan that swaps debt owed to lenders in exchange for control of the company.

U.S. Bankruptcy Judge Kevin Gross approved the plan today in Wilmington, Delaware, saying “this is clearly a successful case.” Heartland’s debt will be cut by about half, company attorney Robert S. Brady told Gross. Heartland expects to leave bankruptcy by May 1, Chief Executive Officer Michael C. Bush said in an interview.

“We still want to grow,” Bush said. Heartland’s managers “want us to go back on the acquisition trail.”

Under the restructuring plan, lenders with the highest level of repayment, owed about $114 million, will get stock representing 90 percent of the reorganized company’s equity and $70 million in new term loans.

Lenders with secondary priority, owed about $45 million, will get 15 percent of any equity value of more than $20 million, according to the plan. General unsecured creditors will be paid in full. An incentive agreement gives management 10 percent of the stock after reaching certain milestones.

Heartland, based in Clinton, Connecticut, was founded in 2004 with the purchase of 22 publications from Community Newspapers Inc. Heartland publishes newspapers in 10 states including Georgia, Ohio and North Carolina. The company has about 762 employees, and uses about 370 independent contractors, court papers show.

Sales Drop

The company listed debt of $166.2 million and assets of $134.3 million as of Oct. 31 in Chapter 11 documents filed in December. Chapter 11 is the section of the U.S. Bankruptcy Code used by companies to reorganize.

The bankruptcy was largely a balance sheet restructuring, Bush said. While a drop in sales has slowed, and Internet revenue is rising after the company introduced new local news Web sites, Bush said he doesn’t see the company turning “a great profit” anytime soon.

The case is In re Heartland Publications LLC, 09-14459, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.

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