Some Pappas Telecasting companies file for Ch. 11 Bankruptcy protection

[TedL]

Some of the Pappas Telecasting stations filed Chapter 11 bankruptcy papers in a Wilmington, Deleware federal court, Saturday.

Pappas Telecasting Companies of Fresno, California says 13 of its stations are involved, including the umbrella company's KMPH-TV, the Fresno area FOX affiliate.

The goal of the bankruptcy is to accomplish "an orderly sale of the stations as a going concern to preserve asset value,'' Harry Pappas said in bankruptcy court paperwork quoted by Bloomberg.com.

The company says it is the largest privately held television broadcaster in the United States.

Saturday's bankruptcy filings and a bit of web searching show it is a highly leveraged one.

The company reported $536 million in debt and only $460 million in assets on papers filed with the bankruptcy court.

It owes top lenders $303 million. Those include Fortress Credit Corp., which is the largest secured creditor. Fortress and Credit Suisse Securities led a syndicate that did a $305 million re-financing agreement with Pappas in March, 2006.

"The Pappas entities included in the filing were compelled to do so as the conflicts with the mostly non-bank lenders allowed no other sensible option," CEO Harry Pappas said in a company press release.

"We negotiated in good faith for several months and when talks permanently broke down, we
made the filing to protect our ability to serve our viewers, our advertisers and assure the
interests of our employees, and, as importantly, the interests of our lenders," Pappas said.

In December, 2007, Pappas hired a firm to look at its options, among them selling some or all of its stations.

The Fresno Bee reports Pappas owes "more than $5.8 million to its top 20 creditors. The biggest sum owed, $1.4 million, is to Fox Broadcasting. KMPH is a Fox affiliate."

In news stories about the bankruptcy filing, Pappas Telecasting blamed poor CW network ratings for some of its trouble. The cost of making the analog to digital transition was also cited by company founder/CEO Harry Pappas.

The company said it will be business as usual for advertisers and viewers during the bankruptcy process.

Pappas Telecasting said the stations involved are:

KMPH-TV, Fox, Visalia (Fresno), California, the Pappas flagship,
KFRE-TV, CW, Sanger (Fresno), California

KPTM, Fox, Omaha, Nebraska
KXVO, CW, Omaha, Nebraska *Pappas has local Marketing Agreement to provide programming to Mitts Telecasting, licensee of KXVO.

WCWG, CW, Lexington (Greensboro / Winston-Salem / Highpoint) North Carolina

KPTH, Fox, Sioux City, Iowa *My network on DTV .2 signal
KMEG, CBS, Sioux City, Iowa

KTNC-TV, TuVisión, Concord (San Francisco / Oakland / San Jose), California

KAZH, TuVisión, Baytown (Houston), Texas

KDBC-TV, CBS, El Paso, Texas

KREN-TV, CW, Reno, Nevada
KAZR-CA, TuVisión, Reno, Nevada

KCWK, CW, Walla Walla (Yakima / Pasco / Richland / Kennewick), Washington

The release says the Pappas Group operates another seventeen (17) television stations and two (2) radio stations through entities that are not involved in the chapter 11 cases.

Not specifically broken out in the press release are the status of a number of TV, DT, LP, CA or translator stations that are tied to some of the stations involved in the Chapter 11 proceedings. For examples, see this 2007 ownership report:

http://fjallfoss.fcc.gov/prod/cdbs/forms/prod/getattachment_exh.cgi?exhibit_id=531415

The US economic downturn didn't help the companies' situation, but Pappas Telecasting President Dennis J. Davis said some of the bankrupt stations were showing increased revenue:

"KPTM, a Fox affiliate located in Omaha, Nebraska, achieved revenue increases for the first quarter of 2008 of 27.9 percent over the same period in 2007, exclusive of any political advertising," Davis said.

"In Greensboro, North Carolina, WCWG, a CW affiliate, has achieved revenue increases in the first quarter of 2008 of 6.9 percent over the same period in 2007 exclusive of any political revenue," he said.

"In Fresno, California, the Fox affiliate, KMPH-TV has achieved a 2.0 percent increase in first quarter 2008 revenues over the same period last year excluding political advertising," he added.

Davis said that including political revenue, "KMPH-TV has surpassed last year's first quarter performance by 10.4 percent. In fact, more than half of Pappas' full power English language television stations in the various markets in the United States have over-performed in revenue performance as measured by the TVB television revenue survey of over 750 television stations."

Some of the first signs of trouble may have been when the company abruptly ended news broadcasts on its Reno CW and TuVision stations in March and let the news staff go.

Pappas cited less than anticipated income for the single 10 p.m. English and 6 p.m. Spanish newscasts made from a brand new high-tech, HD studio at a Reno mall. Some of the employees were considering a lawsuit about the loss of their jobs.

Several companies have been interested in the stations, the Fresno Bee wrote in a Sunday item about the bankruptcy filing. So far, no deal or deals, but "the sales process shall continue. That is our goal," the Bee quoted Pappas VP/Special Counsel Steven Alfieris.

Some of Pappas' financial trouble can be tied to its attempt to start a new Hispanic network. Announced in 2000, the "Azteca America" was a joint venture with Mexican TV programmer, TV Azteca.

Pappas intended to have ten stations committed the network, and according to the Valley Voice newspaper, had signed deals to buy seven.

At the same time, Univision started the TeleFutura network and bought a dozen full-power stations across the country from Home Shopping Network.

Valley Voice wrote that "reliable sources" said the move by Univision "hurt the Pappas negotiations and all but one of those purchases fell by the wayside with Mr. Pappas losing substantial earnest money he had put up."

By 2002 the deal with TV Azteca had fallen apart, leading to suits and countersuits. A settlement in 2003 committed the Pappas-owned KAZA-TV to Azteca America programming in compensation for $129 million in financing TV Azteca had provided earlier. That deal was extended in Jan., 2008 to 2012.

Citing "underperformance" by Azteca America programming, Pappas pulled the plug on other Azteca America affiliations and started an in-house network called TuVisión.

Hubbed from a new HDTV facility shared with KREN and KAZR-CA in a Reno shopping mall, the network's programming was distributed by IP (internet) circuits to the other Pappas' TuVisión stations.

The TuVisión network may be carried on one of KAZA-DT's digital channels in the LA market, an option worked out in the KAZA-TV/DT extension agreement.

While the $129 million in this deal isn't connected to the current bankruptcy proceedings, it does offer an idea of how leveraged the Pappas holdings are.

An SEC 10-K filing by Ares Capital Corp. shows that at the end of 2007 it held $20,844,789 in "senior secured loans" due in February of 2010, at interest rates of 14.73 percent. They were acquired in March of 2006.

Since Pappas is a privately owned company, it doesn't have to make SEC filings, and the bankruptcy court filing is one window open to what its financial condition is like.

Case Information: In re Pappas Telecasting Inc., 08-10916, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Register here for online access: http://pacer.psc.uscourts.gov/ Cost: 8 cents a page. See FAQ link for details:
http://pacer.psc.uscourts.gov/faq.html#GP1 FAQ link

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Links to stories about the Pappas bankruptcy filing:

Pappas Press Release:
videos.pappastv.com/kmph/special/pdf/PAPPASTV.pdf

http://www.fresnobee.com/263/story/590871.html

http://www.bloomberg.com/apps/news?pid=20601110&sid=aDPd5IDkQv_E

http://news.morningstar.com/newsnet...J/200805101258DOWJONESDJONLINE000266_univ.xml


Background on the company:

http://broadcastengineering.com/news/pappas_shuts_news_reno_0317/

http://www.pappastv.com/index.php

Reno newscasts Start and End:
http://www.pappastv.com/pressdetail.php?id=96&prYr=2007


Valley Voices story about Pappas and TV Azteca:
http://www.valleyvoicenewspaper.com/vvarc/2002/august72002.htm

Financial stories, info:
Fortress Credit Corporation and Credit Suisse Securities re-finance:
http://www.legal500.co.uk/index.php...try_code=usv1_cr&l5directory=us500&Itemid=598

http://www.arescapitalcorp.com/
http://www.snl.com/irweblinkx/doc.aspx?IID=4092627&DID=7403144

 

[DubbaDon]

Great recap...

You are correct about the TV Azteca issues. Pappas thought that his deal made him the exclusive US distribution outlet for Azteca America. Only problem was he was the exclusive broadcast television outlet, Dish Network was the EXCLUSIVE satellite outlet and Comcast was the EXCLUSIVE cable outlet. When conflicts in coverage or distribution arose later, Pappas lost because his deal followed the others. This meant no satellite or cable service for his stations in those areas.

The costs of going High Definition were a big problem as well as new Pappas management chose to move forward with conversion even when the competition in the various markets were not moving that direction. Prior to 2000, Pappas had been very conservative with equipment purchases, now they were buying bleeding edge technology. They chose equipment introduced at NAB rather than wait until the bugs were worked out and the costs were reduced. They allowed many of their stations to fall into disrepair rather than upgrade to standard definition digital as a stepping stone which probably affected my potential purchasers consideration.

There was also a lot of management changes as new Pappas management replaced older managers hired by Mr. Pappas and his older core staff with new managers loyal to the new management. Payments to a head-hunter company run by the wife of the COO for positions the COO was responsible for firing/hiring also complicated things.

Pappas was a pure broadcaster - one of the few ownership groups that was exclusive broadcast.

 

[HoustonListener]

I still don't understand how DirecTV dropped Pappas' Channel 57 KAZH in Baytown/Houston Texas from its Houston local channel lineup when it lost the affiliation with Azteca America. DirecTV instead picked up low power Channel 34 KUVM that now runs Azteca America in Houston...and it running it on Channel 57 on DirecTV...as if the channel never really changed. DirecTV is not running the full power Channel 57 in its local station package for Houston in favor of the low power Channel 34. That has to be a blow to Pappas.

 

[DubbaDon]

One of Pappas's weaknesses was their lack of large-market management experience. Most of their stations were in smaller markets, they tried to deal with satellite and cable in their few large markets like they did in the small markets. The results were apparent.

They tried to play with the big boys, they went out buying equipment like drunken sailors, they were arrogant at times. This was not the Pappas Telecasting of the 90's. That company would have been profitable. The old Pappas Telecasting would not have spent millions on equipment that could not be viewed by a majority of viewers. They abandoned the safe, tried and tested thinking of previous management and with reckless abandonment drove the company to where it is today.

 

[DubbaDon]

The Fresno Bee is now reporting that creditors have forced Harry Pappas into Chapter 7 - http://www.fresnobee.com/263/story/601856.html

A sad day.

 

[TedL]

The Fresno Bee is now reporting that creditors have forced Harry Pappas into Chapter 7 - http://www.fresnobee.com/263/story/601856.html

A sad day.

Pappas may be down, but he's not out, yet.

I do wonder how this may affect his promise to provide $2 million in operating money for the 13 stations that are part of the chapter 11 actions.

Pappas took what was then KRBK, 31, Sacramento out of Bankruptcy when the original owners got into trouble. I remember that period when he was the receiver operating it. Two Ampex Quad machines (a VR-1200 and a VR-2000 if I recall correctly) RCA TK-29/TP-55A/dual TP-66/TP-7 film island. Oh, and two 2-plumbicon Ampex cameras, only one of which worked.

It had one-inch, two film islands including an RCA TP-35 projector that was used to transfer feature films and television series for Hollywood studios. In fact, I'd bet many of the "Little House on the Prairie" episodes you see in syndication were transferred there. The chief engineer at that time says he sees the slate on the feeds his current station records.

Perhaps Pappas will be a Phoenix.

Ted.

 

[DubbaDon]

If Harry could shed some of his Mis-Managers, he might survive. I couldn't believe when we were pitched a National Master Control (ANALOG) run out of Omaha several years ago. 6 Different Networks run from a station where 3 to 10 seconds of dead air was standard. The telecom costs were twice the cost of personnel it would have replaced.

A few years ago, they made limited efforts to convert a few stations to High Definition, despite the lack of viewers and high costs for first generation equipment and limited availability of syndicated HD programming. They converted stations almost in reverse order of audiences, spending millions in Reno while letting larger market stations go wanting.

He may have employed relatives; but one of his Managers was responsible for hiring and firing was sending the Head Hunting Business to his wife. He fired them, she hired them and was paid for the effort.

Harry's vision of broadcasting was inspiring; but I'm afraid that the entire industry is doomed as cable and satellite are the preferred delivery methods. The local broadcaster will not survive as long as they act as a conduit for networks and syndicators.

 

[TedL]

The local broadcaster will not survive as long as they act as a conduit for networks and syndicators.

Are you saying that local stations need to return to their pre-coaxial cable roots? Locally produced, locally sold, locally sponsored programs?

With the ubiquity of small cameras and laptop editing, it's not a technological challenge. although coming up with competitive programs might be.

Ted

 

[DubbaDon]

Local broadcasters rarely offer anything but a way for the networks to distribute their programs. Think about it - CBS, NBC and ABC provide upwards of 18 hours of content daily to the local affiliates. It requires that they have a local affiliate board, they must service 200 plus stations, deal with multiple time zone issues, program clearances, etc. Why can't they just feed via Satellite or Cable - eliminating the local broadcaster/middleman?

Fox has a direct path via the FX Network, CW has established a direct path in TV markets smaller than the Top100 with the CW Plus.

There are 100 plus channels on cable and satellite available to the home viewer. Broadcasting provides about a tenth of that.

The Viewer wants more choices and broadcasting can no longer provide that. They must re-invent themselves or waste away.