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Metroland bankruptcy smells to high heaven

Predatory owners are taking advantage of bankruptcy laws to make things worse for journalism, workers and communities

Media Canadian Business

The chain of 70 Ontario community newspapers and a half-dozen dailies, including the historic Hamilton Spectator, filed last week for court protection from its creditors. File photo by John Rennison/Hamilton Spectator.

Bankruptcy is standard operating procedure for the hedge funds and private equity firms that now dominate our beleaguered newspaper industry. They are adept at working the bankruptcy process to advantage as they chew up and spit out icons of what was once a thriving news media. That’s what makes the bankruptcy of Metroland Media highly suspicious. The chain of 70 Ontario community newspapers and a half-dozen dailies, including the historic Hamilton Spectator, filed last week for court protection from its creditors, the list of which is somehow topped by its owning Torstar Corp., to which it apparently owes $41.6 million. That is surprising, since Torstar itself was acquired for only $10 million more just three years ago by private equity firm NordStar Capital, but it’s the way things work in the high-finance world of vulture capitalism. Torstar’s finances are a black box since NordStar took the once publicly-traded company private in 2020, as it no longer has to disclose its earnings, but the last time it did, money-making Metroland was subsidizing the money-losing Star.

How Metroland got $41.6 million in debt is a mystery, but it could be a result of the kind of financial engineering in which private equity firms specialize. They have been known to orchestrate the occasional “strategic” bankruptcy to cut costs and shed liabilities but remain in control of the company. That Torstar will emerge from bankruptcy proceedings still owning Metroland was foretold by the fact that, just before filing, it converted all of its weeklies to online-only publication and laid off 605 workers. Normally those kinds of transformational decisions should be left for the company’s new owner, which would usually be the highest bidder at a bankruptcy auction. Worst of all, the suddenly unemployed workers received no severance pay because they were unsecured creditors.

Unifor, which represents 104 of its severed staff, accused NordStar of “betraying workers and leaving an information vacuum in many communities,” but it is complicit in their plight. It joined the newspaper lobby’s campaign first for the $595 million bailout announced in 2018, which has done little more than continue to enrich the vultures, and then for the Online News Act, which has now gone off the rails and taken much of our news media with it. If you lie down with dogs, as the old saying goes, you get up with fleas.

NordStar scooped up Torstar and its three divisions—Metroland, the Toronto Star and a thriving digital arm—at the height of the COVID-19 pandemic three years ago from a spooked family group which had owned it since 1957. The price was less than debt-free Torstar’s $69 million in cash and was paid with a $50 million loan from Toronto investment fund Canso, which in 2014 similarly financed Postmedia Network’s $316 million purchase of the Sun Media chain. As the holder of Postmedia’s secured debt, Canso thus stands first in line to take over that foundering company, which prompted speculation about a merger of Canada’s two largest newspaper chains.

Postmedia, not coincidentally, was formed from the 2009 bankruptcy of Canwest Global Communications, which founded Canada’s highly-profitable third television network in the 1970s but took on massive debt in buying the Southam newspaper chain for $3.2 billion in 2000. Canwest’s high-interest debt was bought up by US hedge funds at pennies on the dollar as its fortunes fell with the 2008-09 recession, and they have been using it to bleed the newspapers dry ever since, taking more than $500 million out of the company in debt payments since 2010.

NordStar denied the merger rumours, but unusual trading in its shares earlier this year forced Postmedia to admit that merger talks with Torstar were ongoing and had also been held in 2020. They soon broke off again, reportedly because the hedge funds wanted to keep on the merged company’s books much of the more than $200 million in unsecured debt they still hold. Postmedia CEO Andrew MacLeod, however, blamed the “unstable landscape as it pertains to Google and Facebook,” referring to Ottawa’s failure to force the digital platforms to subsidize Canada’s news media under the Online News Act.

NordStar has been following the private equity playbook of cutting costs and stripping the assets of distressed newspaper firms acquired on the cheap, which was described by The Atlantic magazine in 2021. “Gut the staff, sell the real estate, jack up subscription prices, and wring as much cash as possible out of the enterprise until eventually enough readers cancel their subscriptions that the paper folds, or is reduced to a desiccated husk of its former self.” On Tuesday, despite Metroland being in bankruptcy protection and a trustee apparently not having been appointed to run the company, NordStar announced the closure of its Hamilton Spectator newsroom, leaving its staff to work from home. NordStar also pocketed $125 million in 2021 when it spun off 40 percent of Torstar’s digital division Verticalscope in a public offering of shares that valued the subsidiary at $400 million.

Its Metroland bankruptcy filing is classic vulture capitalism, as it may enable NordStar to shed legal and financial obligations such as leases and union contracts (in addition to $16 million in severance pay) and yet continue to own the company. It has been done before. The US chain Journal Register, which published the New Haven Register and 19 other dailies, filed for bankruptcy not once but twice. It first went under water in 2009 when it could no longer make payments on its US$692 million in debt, which it took on in making acquisitions. It was soon under new ownership by hedge fund Alden Global Capital, which had bought much of its debt on the bond market. Three years later, it went bankrupt again when its earnings were insufficient to keep making payments to Alden. After shedding tax debts, pensions and other liabilities, Alden maintained control of the company as its largest secured creditor and Journal Register became the cornerstone of its empire of about 200 newspapers.

The arcane process of bankruptcy has not been well reported, but journalists at the Chicago Tribune took a special interest in the 2008 collapse of its parent Tribune Company under the weight of $13 billion in debt. Its bankruptcy took four years to resolve and cost an estimated $500 million in legal fees alone. The Tribune ran a series of articles on the process which “exposed a powerful but little-known industry thriving in the midst of the American bankruptcy court system.” It included “massive investment funds that buy and sell the debt of troubled companies” and an “army of lawyers and other bankruptcy professionals who follow them around, charging as much as $1,000 an hour.”

The parlous state of Canada’s news media is bad enough, but for predatory owners to take advantage of bankruptcy laws to make things worse for journalism, workers and communities is unconscionable and hardly deserving of support.

Marc Edge is a journalism researcher and author who lives in Ladysmith, BC. His books and articles can be found online at www.marcedge.com.

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