Declining advertising revenue, rising production costs hampered the ability to cover debt, records show
Reading, PA –
Documents filed Wednesday with the US Bankruptcy Court and filed in court today out of the story of how Reading Eagle Company found its financial situation untenable. and ended up filing for Chapter 11 bankruptcy protection.
The company includes the Reading Eagle, WEEU 830 AM, the weekly Schuylkill News, Pretzel City Productions and its commercial printing subsidiary REP. The company has 236 full-time employees and 20 part-time.
Revenues falling, rising
The troubles started in 2009 when the company took on a "substantial debt" to complete a 77,000-square-foot expansion of its 345 Penn St. headquarters. The space was created to house a new press and consolidated distribution center
But a pattern of declining advertising revenue made the debt hard to pay back.
The rapid loss of advertising revenue, in turn, led to deteriorating earnings before interest, taxes, depreciation and amortization (EBITDA), a common benchmark for the performance of a business.
That EBITDA number went from minus $ 916,000 on sales or $ 35.2 million in 2016 to minus $ 4 million on sales or $ 28 million in 2018.
The company's financial problems caused it to default in 2009 on the loan from Sovereign Bank. At the time of default, the company owed the bank about $ 25 million.
In 2016, facing foreclosure by Santander Bank, formerly Sovereign Bank, on the loan, Reading Eagle Company President and Chief Executive Officer Peter D. Barbey bought the The company's debt from the bank. The purchase was made through BWH Media LLC, a subsidiary of Barbey's Black Walnut Holdings LLC.
After the purchase of the debt by BWH Media, Reading Eagle Company continued to operate at a significant cash flow loss. That led BWH Media to provide additional loans to the company, about $ 250,000 a month. Those loans were bought from Santander Bank
The company took steps to try to stabilize the business, including layoffs. Those moves were countered by increasing costs for things such as newsprint. At the same time, revenue continued to decline.
The court documents say the only way can be further reduced through further cuts to the newsroom, which "cannot bear millions of dollars or cuts." it has now become apparent to the debtors and Mr. Barbey that, despite their best efforts, the debtors are no longer in sustainable stand-alone business under the current structure, "one of the documents reads.
Looking for a buyer
For the past year, [ company officials have been looking for potential merger . or acquisition partners of potential major investors. And in December, the company hired the firm Dirks, Van Essen, Murray and April to invest in or buy the company.
The firm contacted 23 potential investors in buyers, providing information about the company it had compiled to 13, who were not identified in the court papers
A bid deadline was set for March 14.
Only one letter of intent was received by that deadline, and company officials decided it should not be accepted. Instead, the company decided to file for Chapter 11 bankruptcy protection and offer the company's assets for sale through that process.
Which led to Wednesday, when the company filed paperwork in federal court officially seeking bankruptcy protection.
Employees were gathered Inside a third-floor meeting room Wednesday afternoon, just before the paperwork was submitted, to hear and short announcement by Barbey about the decision.
What is Chapter 11 bankruptcy?
A general, to declare bankruptcy means the amount of one's debts are more than assets and income can be supported, and there are no immediate prospects of paying those debts off in a timely manner
A Chapter 11 bankruptcy meaning it is filed under Chapter 11 of the US Bankruptcy Code – is often referred to as a "reorganization" bankruptcy and is used by a business to reorganize its debt under the protection of the bankruptcy court.
It is filed when a business is unable to service its debt or pay its creditors . In most instances, the business – referred to in bankruptcy filings as the debtor – remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court.
If the reorganization is successful, the debtor may emerge from a Chapter 11 bankruptcy within a few months or within several years, depending on the size and complexity of the bankruptcy.
Alternately, in a chapter 7 bankruptcy, the business ceases operations, and trustee sells all its assets , then the proceeds are distributed to its creditors. Bankruptcy filing by Reading_Eagle on Scribd Bankruptcy – Creditors by Reading_Eagle on Scribd