United Press International filed for protection under Chapter 11 of the U.S. Bankruptcy Code on Sunday to gain “breathing space” while it attempts to reorganize its finances.
In papers filed with the U.S. Bankruptcy Court for the District of Columbia, attorneys for the 78-year-old wire service froze its creditors from collecting on liabilities of up to $45 million, more than double UPI’s estimated $20 million in assets.
Lawyers for the nation’s second-largest wire service said they plan to file a petition today asking the court for permission to cover last week’s paychecks for nearly 2,000 employees so operations can continue during reorganization. Employees were advised Thursday night that their checks would bounce if deposited, but they have continued to work since then.
UPI attorneys also said they would ask U.S. Bankruptcy Judge George Bason to approve payment of four weeks’ pay to about 80 employees who were laid off without notice Friday in a cost-cutting measure.
The wire service will seek court approval to enter into a financial agreement with Foothill Capital Corp. of Los Angeles, its chief cash lender, to provide funds where needed during the reorganization period, the attorneys said.
A company spokesman said Richard Levine, a Boston bankruptcy attorney representing UPI, has received indications that Bason would clear court schedules to facilitate quick action on those matters.
UPI President Ray Wechsler called the development “terrific for the company” and its ability to reorganize.
“We’ve basically been looking at this option for a long time,” he said. “I think this will really help us in our effort toward recapitalizing the company. We have outstanding support from our creditors and our secured lenders, and I think this will help make the company more attractive to outside investors.”
Wechsler predicted that UPI’s Chapter 11 proceedings “will not be very lengthy.”
Francis DiCello, a Washington attorney who filed the court papers at 5:14 p.m. EDT, said at the federal courthouse that “basically, what happens in a Chapter 11 is the filing of a petition allows some breathing space for the corporation to restructure its affairs.”
Filed on Sunday
DiCello said the effect of Sunday’s filing “is that automatically an order to call relief is entered and creditors are stayed--or stopped--from taking any enforced collection action pending further order of the bankruptcy court.”
The court clerk’s office opened briefly Sunday for the filing of the papers.
The court papers listed about 1,500 UPI creditors, including $8 million to $10 million in unsecured debts, including Foothill and four other firms that were not named.
It itemized debts to the top 20 unsecured creditors, including:
- $6.1 million to AT&T; Communications, which provides telephone lines for news and photo transmission as well as for reporting efforts.
- $2.1 million to Equatorial Communications Co., which provides receiving dishes to UPI clients that receive the service via satellite transmission.
- $1.3 million to American Express Co., which provided credit cards for employees.
Others listed included United Media Enterprises, owed $720,000; Sperry Univac, $637,000; Graphic Controls Corp., $520,000; ITT World Communications, $433,000; the New York advertising agency of Lois Pitts Gershon, $390,000; RCA Service Co., $347,000; AT&T; Information Systems, $346,000; Western Union, $336,000; Lectronic Systems Inc., $312,000; Ribco Products Inc., $300,000; Communications Devices Inc., $290,000; the Chicago law firm of Hopkins and Sutter, $260,000; Harris Corp., $254,000; Datafold Inc., $248,000; News Election Service, $180,000; RCA Global Communications Inc., $160,000, and Genstar Rental Electronics, $136,000.
Forced to action when Foothill refused last week to exceed its $4-million credit limit to the cash-short wire service, UPI’s four-member board of directors voted Thursday night to authorize Chairman Luis Nogales to file for Chapter 11 protection from its creditors.
Company sources said Foothill balked at extending additional credit because it was dissatisfied that the UPI employees’ union had declined to accept further wage cuts and with management’s refusal to make extensive staff reductions. The Wire Service Guild, representing about half of UPI’s employees, voted in September to accept a 25% wage slash and phased restorations, which this month brought employees to within 90% of their old salaries.
Since the wage cuts were imposed, UPI has turned five straight monthly operating profits--its first such financial success in 23 years. UPI was owned until 1982 by the E. W. Scripps Co., which absorbed losses as a tax break. Nogales has asserted that the company can survive--and should attract outside investors--if it is freed from its heavy debts.
Raised Rates by 9.9%
Effective Sunday, UPI raised rates for its clients by 9.9%, a move aimed at generating several million dollars in revenue.
Levine, reached in Boston, said that, under a Chapter 11 filing, employees will receive a high priority for receiving payment of all debts of up to $2,000.
A company spokesman said, however, that a smaller number of employees received biweekly paychecks exceeding $2,000 last week, and it is unclear whether they will be paid in full or only up to that figure.
DiCello said UPI would be required to file with the court a full schedule of assets and liabilities within 15 days unless it receives an extension. The company has four months to propose a complete plan of reorganization, he said.
Levine said he expected to do so “relatively promptly,” stressing that he and company officials have been working closely with a “sophisticated creditors’ committee.”
Levine also said that, with the Chapter 11 filing, UPI should only have to rely on increased credit from Foothill for “10 days or so,” after which its reduced payment schedules should allow for a continued positive cash flow.