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Plan Approved in Freedom Communications Greatly Enhances Creditor Recovery

March 9, 2010

The Delaware bankruptcy court has approved the plan of reorganization for Freedom Communications, owner of The Orange County Register in California and other media properties. As a result of actions taken by Pachulski Stang on behalf of the unsecured creditors' committee in this “pre-planned” chapter 11 case, the debtors and their lenders radically amended the plan that had originally been proposed to greatly enhance unsecured creditors’ recoveries.  Specifically, the original plan provided that creditors holding claims of approximately $60 million would share pro rata in a pot of $5 million in cash, or about an eight cents distribution on the dollar, save for up to $5.5 million in trade creditors who might be paid a greater amount under a vendor agreement.  After extensive litigation over the DIP loan, approval of the debtors’ disclosure statement, and other matters, the debtors and lenders agreed to a new consensual plan.  Under the plan approved by the court, certain creditors will be paid in full  and obligations of holders of unqualified pension claims are reinstated at 70% of their claimed amount.  The remainder of the unsecured creditors (about $40 million in amount) will share a pot of $14.5 million in cash and retain the right to assert claims against directors and officers (as to which there is approximately $25 million in insurance coverage, providing a range of recovery for them of 37% to 100%).