Imagine starting to read a book on the second-to-last page. In the story of The Dolan Company, the second-to-last page would note Thursday’s announcement the company will file for Chapter 11 bankruptcy.
And by preparing what is known as a “pre-packaged bankruptcy,” observers said, the company is attempting to write the last page of the nonfiction book before it happens: a bankruptcy court approving the reorganization by Memorial Day while business operations across the country continue as normal.
“If you get your creditors on board, hopefully it will be spun in a positive way to the judge,” said Andrew J. Currie, a bankruptcy lawyer with Venable LLP in Baltimore. “It’s not, ‘Gee, we’re in bankruptcy and a freefall.’”
How Dolan, the Minneapolis-based parent of The Daily Record, reached the point where its secured debt totaled $170 million will be spelled out more clearly next week when the voluntary bankruptcy petitions are scheduled to be filed in the U.S. Bankruptcy Court for the District of Delaware. But company officials said Thursday they expect to continue providing to its legal services customers and in the 19 local publishing markets it serves. Vendors and other unsecured creditors are expected to be paid in full, while employees will continue to be paid as usual, the company said in a statement.
“The company remains well positioned in its core markets,” said Kevin Nystrom, who was named Dolan’s chief restructuring officer in January. “This reorganization step is necessary to unlock these current businesses from the weight of debt principally associated with its previous mortgage foreclosure processing businesses.”
Suzanne Fischer-Huettner, publisher of The Daily Record, said the 125-year-old newspaper is “consistently profitable and has never lacked for investment.”
The Daily Record was one of Dolan’s earliest acquisitions, in 1994.
“We are a strong operation with strong local leadership,” Huettner said. “Despite today’s news about our parent company, The Daily Record plans to provide essential business and legal news for the next 125 years using traditional means and all the new digital technology there is to offer.”
The bankruptcy process will lift a burden from Dolan holdings like The Daily Record, said Christopher A. Eddings, president of the newspaper and vice president of Dolan’s Business Information Division.
“The Daily Record and our individual business units, our newspapers and publications, if anything will be freed of what had been a very difficult debt,” said Eddings, a Baltimore-area resident who will remain with both companies. “I do think it is really important to say that, assuming everything goes as planned at this point, that all of our bills will be paid. No one will be harmed in any way. That’s all of the people with whom we do business [and] I think that’s really good news for all our publishing units.”
Dolan officials said they anticipate “a speedy exit from bankruptcy and smooth, continued operation of the company” because of the pre-packaged bankruptcy. Under such plans, the details of the bankruptcy, including a disclosure statement and reorganization plan, are filed along with the bankruptcy petition.
“Instead of this going on after the case is filed, it goes on before it’s filed,” said Louis J. Ebert, co-chairman of the Creditors’ Rights Department of Rosenberg Martin Greenberg LLP in Baltimore.
Most importantly, a majority of creditors are on board with the reorganization plan, which bankruptcy lawyers say could take months or years in a normal Chapter 11 bankruptcy. According to Dolan officials, the company’s plan would allow it to reduce its secured debt from $170 million to approximately $50 million by having creditors exchange existing bank debt for equity ownership in the company.
Dolan officials said secured lenders will take ownership of the company once the Chapter 11 process is finalized. The largest owner is expected to be Bayside Capital, Inc., a subsidiary of H.I.G. Capital, a $15 billion private equity fund that regularly takes ownership interests in businesses. Dolan would emerge from bankruptcy shortly thereafter as a privately held entity with $50 million of funded debt, officials said.
Creditors who object to the plan could hold up the bankruptcy proceedings. But Gregory A. Cross, the partner in charge of Venable’s bankruptcy group, said he did not think there would be any objections to Dolan’s plan, noting the lenders are providing a $10 million debtor-in-possession loan to fund cash needs of the company through reorganization.
“It appears, given the short confirmation time frame and only secured creditors voting, that most if not all of the major restructuring issues have been resolved and most if not all secured creditors are already on board,” said Cross, who is based in Baltimore.
With a plan in place, backed by creditors, a pre-packaged bankruptcy such as Dolan’s is “ready for approval as soon as possible,” said Gabrielle M. Duvall, a bankruptcy lawyer and partner with Linowes and Blocher LLP in Bethesda.
Dolan officials estimated a federal judge would approve the reorganization plans about five weeks after the first filing is made.
The most famous, recent examples of pre-packaged bankruptcies are those of Chrysler and General Motors. Pre-packaged bankruptcies still remain atypical but have grown in popularity in large part because they negate what can be an adversarial and costly bankruptcy proceeding, lawyers said.
“It’s become more and more in vogue in the post-credit-based recession,” Duvall said.
James P. Dolan, founder of The Dolan Company and its president, chief executive officer and chairman of the board since it began in 1992, is resigning and will not be part of the restructured company. Dolan said he has formed a new company called Dolan Ventures LLC. He declined further comment when reached Thursday afternoon.
Scott J. Pollei, executive vice president and chief operating officer, is also departing.
Chief Financial Officer Vicki Duncomb and General Counsel Renee Jackson will remain and assist Nystrom in managing The Dolan Company.
The subsidiaries of The Dolan Company will be parties to the bankruptcy petitions, with the exception of its e-discovery business, DiscoverReady LLC, which will continue to operate as usual. DiscoverReady will be a separate company upon completion of the restructuring without funded debt and with access to a $10 million credit facility.
Founded in 1992 and privately owned for 15 years, The Dolan Company went public in 2007 at an offering price of $14.50 per share and closed briefly above $28 before the end of that year. On Jan. 29 of this year, the New York Stock Exchange suspended trading in Dolan’s common and preferred stock after it fell below $1 a share for 30 trading days in a row with no immediate sign of recovery.
Now listed over the counter, Dolan stock closed Thursday at less than 3 cents a share, down from 15 cents a share from Wednesday’s closing.
According to Dolan’s most recent earnings release, for the third quarter of 2013 the company posted revenue of $35.4 million in the quarter and projected revenue for the full year of $150 million to $154 million.
The company has been selling off business units as the credit squeeze tightened and the mortgage market underwent turmoil. National Default Exchange, or NDeX, which provided mortgage default processing services to law firms, was at one time the company’s largest operating unit. Now it is one of the smallest.
The Dolan Company provides professional services and business information to the legal, financial and real estate sectors.
Its Professional Services Division provides specialized outsourced services to the legal profession primarily through subsidiaries DiscoverReady LLC and Counsel Press. Counsel Press is the nation’s largest provider of appellate services to the legal community.
DiscoverReady LLC provides outsourced discovery management and document review services to major companies and law firms. NDeX assists law firms with mortgage default work in Minnesota and another unit of the division, Assure360, also provides support to law firms in the default sector.
The company’s Business Information Division publishes business journals, court and commercial media and other highly focused information products and services, operates websites and produces events for targeted legal and professional audiences.
Adam Bednar, Lizzie McClellan and Tom Linthicum contributed to this story.