What creditor protection means for Black Press, its papers, and readers

On Monday, the owner of dozens of BC community newspapers—including those in Langley, Chilliwack, Abbotsford, Mission, Hope and Agassiz—filed for creditor protection.

In court filings, the company declared that it didn’t have the means to pay back huge debts—many incurred while buying an American newspaper in 2006.

Yesterday, The Current published a long in-depth piece about Black Press’s history, how it ended up losing more than $150 million on an Ohio newspaper, and how technological changes have left it unable to come back from its costly mistake.

• READ MORE: How an Ohio newspaper sank a BC publishing empire

Today, we’re reporting on what it means to be in creditor protection, and what Black Press’s sale and financial status may herald for the century-old community institutions it controls.

Black Press’s future is uncertain.

In addition to filing for creditor protection, the company has been bought by an American newspaper publishing company and two investment agencies. The company and its papers will continue operating. In announcing the sale, the company’s new CEO, Glenn Rogers, declared that Black Press “will continue to provide by far the best local Canadian and American news coverage in our markets and the best ways for advertisers to reach their customers.”

But creditor protection inevitably means change for companies, their workers, and their customers (and, in the case of publishers, their readers). And rarely is that change positive.

Here’s what we know about the deal, and what it could bring for the community institutions.

Creditor protection

Companies file for creditor protection when there is little prospect that they can repay all their debts. In fiscal terms, this occurs when a company’s liabilities exceed its assets and when it has run out of time (and money) to increase profits and reverse that equation.

Black Press currently owes more than $60 million but has struggled to meet debt payments because of a lack of revenue due to the pandemic, economic pressures, and the fact that newspapers aren’t nearly the profit-driving force that they once were, thanks to the Internet. The company says it has sold more than $45 million in real estate in recent years and cut $30 million in costs. But it hasn’t been enough.

Creditor protection is governed by the Companies’ Creditors Arrangement Act in Canada. It is a court-driven process that allows a company to restructure its debt. The courts are involved because the restructuring is not a pain-free process and because it involves balancing obligations to creditors. The restructuring requires deciding upon a pecking order for creditors; i.e. who gets their money back first, and how much money every creditor will receive. The courts determine that order—and they also oversee the company’s efforts to pay back that money.

Not all creditors are necessary lenders. Creditors can be suppliers of goods and services a company sells or uses to assemble its product. (So if a newspaper buys newsprint from a supplier and it hasn’t yet paid its monthly—or yearly—bill, that supplier can be a creditor.) Employees are also inevitably creditors: both because they are paid at the end, rather than the start, of payroll cycles, and because a worker whose employment is terminated is owed severance. (And restructuring inevitably brings job losses and cuts.)

When a company enters creditor protection, it is a sign that not all creditors may ever get all their money back. Creditor protection signals a company can’t see a way out of its financial hole even if it were to sell off components of its business (including properties but also subsidiary companies) and dramatically cut costs.

In return for being permitted to not pay all its bills as promised, the court takes power away from a company and its executives. Those executives may still be putatively in charge, but their decisions are limited by the court and overseen by court-appointed administrators. It’s their job to make sure that the company makes decisions that will help return as much money as possible to its creditors.

The sale

In the press release in which it announced it has obtained creditor protection, Black Press also announced it had sold itself to two investment companies and a publishing company that owns various newspapers in the southern US.

The two investment companies—Canso and Deans Knight Capital Management—were described as “long-time partners of the Company.” That suggests that the two companies are—or were—lenders to Black Press who have exchanged money owed to them for a stake in the company.

The US publishing company, Carpenter Media Group, is described as running “leading community news publications in Southern United States, including Texas, Louisiana, Mississippi, North Carolina, Tennessee, Georgia, Virginia, and Kentucky.” There’s relatively little available online about the company. Its biggest paper seems to be the Shelby County Reporter, a weekly newspaper serving a mostly rural area south of Birmingham, Alabama.

The precedents

Technological changes and bad business decisions have sent many North American newspaper companies into creditor protection or bankruptcy. Usually, that doesn’t spell the end for the companies themselves or most of the papers they own. But it’s never good news. Some companies have avoided creditor protection but still found themselves saddled under a weight of bad debt.

Postmedia is the most obvious example. The company, which owns many of Canada’s largest daily newspapers including the Vancouver Sun and The Province, has struggled for years under massive debt loads. And though it never entered creditor protection, it has been beholden to its lenders for nearly a decade. In 2016, one of its largest creditors, Chatham Asset Management, traded a portion of its Postmedia debt for a two-thirds ownership stake in the company. In other words, it traded its debt for the ability to control the future of the entire company. This is one way that a company’s creditors at the front of the line get their money back: by seizing assets. (The creditors whose loans are linked to some sort of asset are deemed “secured creditors.”)

As you’ll see at the end of the story, Black Press’s creditor protection filing could potentially have been avoided with a sale, but the company’s minority owners didn’t back the deal.

In Chatham’s case, it essentially seized the company itself. (A 2020 New York Times story noted that Postmedia downplayed, this only saying in a 2016 press release that it had made a “debt restructuring” deal. Once Chatham seized control of Postmedia, Chatham moved to swiftly cut costs. In addition to its big daily papers, Postmedia also once owned dozens of smaller newspapers. A decade prior, Postmedia had sold several BC community newspapers—including titles like the Chilliwack Times, the Abbotsford Times, and the Langley Advance—to Glacier Media. (Those papers were later traded to Black Press.) But it still owned many others. After Chatham bought Postmedia, the company closed down many of the remaining titles and stopped printing several others.

The New York Times article notes that as newspaper chains have struggled over the last decade or retreated into bankruptcy, investment companies have often scooped up their remains. Massive cuts often follow as those companies seek to create businesses that are optimized for one thing: pure profitability. Those cuts can take the form of job losses, reduced print runs and editions, or the elimination of papers entirely.

Black Press and the other Black Press

Black Press’s future may be a bit different. Maybe. Some of it depends on what “Black Press” we are talking about.

Black Press Ltd. can be broken down into three corporate and geographic entities based in Western Canada, Hawaii, and Washington State. “Black Press Media,” meanwhile, refers specifically to the company’s Canadian community newspaper holdings.

The company has about 500 employees in the United States, roughly split between its Washington and Hawaii operations. In Canada, the company employs about 700 workers.

The court filings (which you can read here) also show how different the operations are from one another: the company’s 272 workers in Hawaii make an average of about $104,000 (all figures here Canadian dollar). Its 234 Washington State workers make about $76,000 a year on average. And its 717 Canadian workers make around $43,000 a year, on average. (Those Canadian figures vary heavily depending on location and job. Unionized workers in Black Press’s Lower Mainland operations are generally much better remunerated than its non-unionized employees in more rural parts of the chain. A reporter’s salary at a Lower Mainland paper is around $60,000.)

In its press release, Black Press’s new California-based CEO said a new plan would “lead to a stronger, more sustainable Black Press that will continue to provide by far the best local Canadian and American news coverage in our markets and the best ways for advertisers to reach their customers.”

It’s in the creditors’ interest that the public believes Black Press’s papers are going to continue printing and delivering news to readers. But whether those words are proven true remains a big question. And it’s unclear who is shaping the company’s plans because we don’t know just how much of the company is controlled by the (Canadian) investment companies and how much is controlled by the US-based Carpenter Media Group.

Black Press’s court filings says the plan will entail cutting costs and growing revenues. It’s Carpenter and the investment companies that will figure out just how to do that.

But the desire to “grow revenues” is worthy of intense skepticism. Almost no established North American newspapers have been able to increase revenues over the past decade. The reason almost every media outlet has cut staff and costs in recent years—and why Canadian legacy media companies have gone to the federal government and tech companies seeking financial support—is because of that inability to increase revenues. If Black Press’s new owners can actually increase revenues, they should go out and buy every media company they can get their hands on.

What’s more likely is that the owners will focus on increasing profits by cutting costs. The court filing says Black Press’s profits are half that of what they once were. But that suggests some current level of profitability exists without the burden of crushing debt—and that it’s possible that maybe that profitability can be enhanced

Some of that debt crush can be alleviated by the creditor protection proceedings.

The big question, though, is what cuts and moves will be coming. That will be determined by the investment agencies and Carpenter. The plans must also be approved by the courts—and a majority of creditors. (If a plan cannot be agreed upon, the future of the company becomes even less certain. It could be placed into receivership or bankruptcy, triggering sales of its assets and essentially ending the prospect that the company, as an organization, will remain a business entity.)

As they plot their moves, they’ll have to figure out what they consider Black Press’s long-term future to be. Most immediately, they’ll have to figure out what papers should be immediately sold, which should be closed down, and which can be retained.

One of the first questions they’ll face will concern the future of the chain’s single-largest paper: the Honolulu Star-Advertiser. The paper could, hypothetically, be sold. It’s the only major daily newspaper in the chain and, as such, could potentially fetch the largest sum of money should it be sold. But it also might be a money pit that is currently sucking up profits from the chain’s other smaller papers.

Black Press obtained its Hawaii daily paper for just $10 two decades ago. One would think it would be worth more than that today. In 2021, the Tribune Publishing newspaper chain in the United States sold for $633 million. Tribune owned 11 papers, putting the average value of each one at around $55 million. The Baltimore Sun was valued by one potential buyer at around $63 million. But a newspaper’s value also depends on the financial baggage and obligations it carries, and how profitable it is. Some North American newspapers have been judged essentially worthless and either stripped for assets, folded, or turned into non-profits.

The Hawaii paper could also be judged essentially worthless in the short term, but with potentially long-term value if its new owners can make it profitable—a shift that, if history is any indication, would be attempted via severe staffing cuts.

When it comes to the papers in Washington State and, especially, Canada, many of the decisions may revolve around what Carpenter Media wants out of the equation and just how much of Black Press it owns now. It may see significant synergies between its current papers and Black Press’s Washington State publications, and want to find the same efficiencies of scale that prompted Black to create a newspaper empire in the first place. It’s also possible that Carpenter will also want to preserve the connections that currently exist between the Washington State and BC papers.

But it’s also possible that Carpenter doesn’t want to deal with the complexities of operating in a new country and it will look to split the company down the 49th Parallel.

One likely possibility is that Carpenter may have been brought on by the investment companies in the short term specifically for its community newspaper management expertise to help the debtors-turned-owners learn how to extract money from their new company.

The owners will listen to offers for not only individual papers within the Black Press chain, but blocks of papers and divisions. Many papers remain profitable and most come with long legacies and significant name-brand recognition in their respective communities.

But even as they listen to offers, the new owners will be taking a close look at the budget of each paper. They’ll decide whether to keep, sell, or close each publication—and which ones to make online-only publications. They’ll also inevitably contemplate staff cuts.

Their decisions will determine the fate of community institutions across BC, Alberta, and Canada’s three territories.

Closures and cuts

Black Press’s very smallest papers face the most immediate threat of closure. While many of the company’s publications are believed to be profitable (again, before debt is factored in), not all are. Although he was a profit-oriented businessman at heart, David Black had balked at closing small papers that didn’t make money but which, in the grand scheme of things, weren’t huge money pits.

Now that the courts and debtors are in charge, any operation that doesn’t have an obvious monetary upside is likely in immediate peril. Small papers can be profitable but, in general, the fewer pages and advertisements are in your local paper, the less efficient it is to assemble, print, and distribute that product. Even profitable small papers might be in danger: the new owners may decide that instead of having two newspapers that serve adjacent communities, closing one and expanding the coverage area of the other to include both communities will increase profit margins. (This is less useful when a newspaper goes the online-only route, since it’s cheap to maintain a community-specific URL and title even when a publication is produced out of a central location. Black Press has already moved to create “regional hub” newsrooms whereby reporters write stories for a range of publications, rather than a single specific paper. And its titles in Aldergrove and Maple Ridge are already edited and compiled by staff based in Langley.)

Over the last couple of years, one of the key questions is likely to revolve around the question of print itself. Many newspapers across North America have become purely online news products. That includes Glacier Media-owned papers in Metro Vancouver and many community newspapers in Ontario.

Most papers appear headed for that eventuality at some point. But the question isn’t simple.

Newspapers cost a significant amount of money to print, assemble, and distribute. It’s easy to think that moving everything online will automatically make a publication more profitable, even if it comes at the cost of jobs of printers and distributors and other employees. It also leaves those who don’t get their news online suddenly in the dark.

But for companies, it’s not always an easy or profitable decision.

Online ads are harder to sell and tend to fetch much lower rates than print ads. Community newspapers are the biggest print advertising game in town. But online, businesses have many more options and newspapers must compete with the likes of Facebook and Google.

When media companies turn a newspaper into an online-only news organization, their companies inevitably publish optimistic articles promising that they’ll continue providing the same great journalism they always have—just online rather than in a physical edition.

But such moves are almost always accompanied by cuts not just to printing and distribution staffs, but to newsrooms as well. Editors end up being first up on the chopping block, with multiple editing positions often consolidated into a single job. (This is what happened with Glacier’s papers in Burnaby, New Westminster and the Tri-Cities.)

The cuts are intended to increase profitability, but they’re also sometimes seen as necessary: because there is so much less revenue in online media than there is in print, expenses must be much lower as well.

Where’s the fat?

In BC, job losses—and the implications for readers and local journalism—will inevitably follow if papers are cut or moved online.

Job cuts will still be feared even if the papers continue to churn out editions each week.

At the same time, it’s unclear just how much smaller the company’s BC operations can really get at this point. As evidenced by the salary figures above, the company's Canadian employees are paid little. And almost all are now essential to the operations of their respective publications.

The payrolls of the company’s various Fraser Valley publications are a fraction of their former size. And while the papers themselves and ad counts have shrunk, money is still flowing in. The last edition was still 32 pages and featured an additional 32-page section for a local trade show. It was compiled by three advertising salespeople, two reporters, an ad manager, an editor and a publisher, with help from several employees who handle regional matters. Each week, they must produce a new paper and three journalists for such a job is already pushing the limit of what is possible.

Major staff cuts to any department could, seemingly, cripple the paper’s future and ability to get a product out the door.

And yet, in newspapers, there are always more ways to cut. Last Friday, just days before the announcement of the company’s sale, Black Press laid off the editors of both its Surrey-area publications—the Surrey Now-Leader and the Peace Arch News. The papers still go on, for now.

Torstar

There’s one wildcard in the proceedings that may or may not impact the creditor protection process. This reporter hasn’t been able to determine the importance of the following, but it’s worth highlighting here. (If you’re a financial expert, please get in touch and email us!)

Black Press was a private company almost completely controlled by David Black and his family. But two decades ago Torstar, the parent company of the Toronto Star, bought a 20% stake in Black Press and retained that share—at least until recently—through its community newspaper subsidiary Metroland.

The court filings reveal that Metroland voted against entering creditor protection. The filings also say that Torstar didn’t agree to an offer by the creditors and Carpenter to buy the company before arrangements were made to enter creditor protection.

The court filings say: “As a result, the Company determined there were no viable options to sell or restructure the Company outside of a formal insolvency process, and that seeking the benefit of Court protection would provide the best opportunity to maximize value for the benefit of the Company’s stakeholders.”