Young's Post-Ch. 11 Future Is A Gray Area

As the Young Broadcasting bankruptcy claws its way toward a conclusion, employees of the 10-station group are wondering just who's in charge.

Last summer, those at seven of the stations were looking forward to working with the new outside management from Gray Television.

Then late last year, after a competing reorganization plan emerged, Gray was no longer welcome.

"Young management said it's best if there's no communication with the Gray people until this all works out," said a source familiar with the situation. "It's pretty clear the Gray people are not allowed on the property until there's clarity on who's going to operate the stations."

"We're still on hold," Robert Prather, president-COO of Gray said. "We're really not in a position to do anything. The lawyers are telling us to let the litigation play out. We've not been involved in day-to-day stuff for a couple months."

"Is there uncertainty? Yes, but not panic," the source said. "Everybody wants resolution."

During the hiatus, Gray continues to collect on its estimated $2.2 million annual management contract in quarterly payments of $550,000. "We'd rather be earning it," Prather said. "We can help these guys."

Young's bankruptcy, filed in February 2009 in the U.S. Bankruptcy Court for the Southern District of New York, has been challenging. After two auctions were canceled, the senior secured lenders' bid became the default choice last July.

The lenders include Highland Capital, Eaton Vance, Credit Suisse and Oppenheimer.

They outsourced to Gray management of the seven stations: WTEN Albany-Schenectady-Troy, N.Y. (ABC); WATE Knoxville, Tenn. (ABC); WBAY Green Bay, Wis. (ABC); KWQC Davenport, Iowa (NBC); KELO Sioux Falls, S.D. (CBS); KLFY Lafayette, La. (CBS); and WRIC Richmond, Va. (ABC).

The remaining three stations -- KRON San Francisco (MNT), WKRN Nashville (ABC) and WLNS Lansing, Mich. (CBS) -- will continued to be overseen by longtime Young President Deb McDermott.

By early last fall, everything appeared to be on track. But unsecured creditors, unhappy with the proposed reorganization plan, countered with their own plan. The Young board, still controlled by the old management, backed the competing plan and sent Gray to the sidelines.

That's where Gray has remained, even though Judge Arthur Gonzalez in mid-April gave the thumbs up to the senior lenders' plan and cleared the way for filing the necessary license transfer applications at the FCC in May.

The rejected unsecured creditors appealed, but such rulings are rarely reversed, people familiar with bankruptcy court say.

"We're not able to actually manage until we get FCC approval and the company changes hands," said Prather. "We were told our job was consulting, learn as much as we could, be ready to get into management when FCC approval comes."

David Pauker, Young's former chief restructuring officer and managing director at Goldin Associates, a restructuring advisory firm, is optimistic about a near-term Chapter 11 exit.

"Young expects to emerge from bankruptcy within the next 30 to 60 days, following FCC approval of Young's pending license application [by the FCC]," he said.

But Kevin Shea, the senior lenders' chief restructuring officer from the advisory firm Loughlin Meghji, was more restrained.

"There is no timeframe that has been established for any kind of exit," he said. "The judge clearly was very disappointed with the budgeting process that was undertaken and presented by management. We need a good, valid budget. That's the next thing on my list."

The current court-approved reorganization plan leaves Vincent Young as board chairman, but adds four new board members. Replacing McDermott and Morgan, who have resigned, are long-time broadcaster Tony Cassara and former Arthur Andersen partner and private equity investor Tom Sullivan.

Two additional board members, selected by the new owners, are Shea and Sheldon Galloway, a veteran broadcast industry executive currently at another station group, White Knight Broadcasting. (Correction: When this story was originally posted, Galloway was mistakenly identified as an executive at Communications Corp. of America.)

According to the current reorganization plan, Young, McDermott and Morgan all have employment contracts with the new owners. Terms of those contracts are under seal. However, sources familiar with the bankruptcy said there's about six months remaining on the contracts.

What happens when they expire? "No one really knows," said a person familiar with the company.

"There's a high degree of conflict between Vince and the banks, everyone knows that. It's not been an easy bankruptcy. There's been a lot of fighting. ... No one believes for moment he's the guy banks would like to be working with."

The emergence from bankruptcy may not be the end of the uncertainty for employees of Young.

The new owners -- the secured lenders -- don't want to run a broadcasting company long term and will likely be looking for the earliest possible exit. Strategic buyers know this and already are running the numbers.

"The reality is the Young stations are really pretty good stations," said Larry Patrick of Patrick Communications. "Bankruptcy actually has been helpful in releasing the stranglehold on the stations."