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Heartland Publications Files For Chapter 11 Bankruptcy

Heartland Publications, LLC, an operator of newspapers and free or controlled distribution products, Monday, announced the filing of petitions with the U.S. Bankruptcy Court for the District of Delaware under Chapter 11 of the U.S. Bankruptcy Code.

Despite cost-cutting measures, the Clinton, Connecticut-based company reportedly has failed to make payment on its $161 million of first- and second-lien secured loans between December 2008 and February 2009. The company said that it has reached a deal with the majority of its secured first-lien lenders on a financial restructuring. GE Capital (GE) is leading the first-lien lenders as agent.

The publisher of 50 community newspapers expects to complete the financial recapitalization under Chapter 11 Bankruptcy Code by early spring. The company also intends to file a pre-negotiated Plan of Reorganization and Disclosure Statement next week, outlining how the debt will be restructured.

Under the company's pre-negotiated Plan of Reorganization, its existing first-lien debt of $70 million would be exchanged into two term loans of $60 million and $10 million, respectively, along with an additional $2 million revolving credit facility. The first-lien lenders would be entitled to approximately 90% of the equity in the reorganized company before dilution for certain warrants and other equity instruments contemplated for other stakeholders. Holders of second-lien claims would receive no distribution if they reject the Plan. In addition, the Plan calls for the full satisfaction of general unsecured claims.

Heartland, which reaches more than 250,000 print subscribers each month, said that the financial restructuring will reduce the company's debt by more than half and create a new capital structure for the company.

Commenting on Chapter 11 filing, Michael Bush, president and chief executive officer of Heartland stated, "The only problem we have not been able to fix is our balance sheet, which was not predicated on either a severe recession or substantial reduction in newspaper valuations. With the support of our senior lenders, we have voluntarily entered Chapter 11 as the most expeditious way to achieve the kind of balance sheet we will need for future growth."

"And we have made great strides to reduce costs as we made investments into online and other new products and revenue streams," Bush noted.

Further, Heartland stated that its publications will continue to operate without interruption, and all advertising and circulation agreements will continue as earlier. "Our readers, advertisers, and other business associates will see no change in our day-to-day operations," Bush said. As per the company, it has sufficient funds and positive cash flow to pay its ongoing expenses for the foreseeable future.

Bush also stated that the company is asking the Court to approve immediately the continuation of all employee and customer programs and certain key vendor initiatives. The company has not planned any operational changes, including layoffs, as a result of the filing, he noted.

Duff & Phelps Securities, LLC is the financial advisor and Young, Conaway, Stargatt and Taylor LLP is the legal counsel for the company.

by RTT Staff Writer

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