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Over the concerns of some lenders, today Midway Games got a green light from the US Bankruptcy Court for the District of Delaware to continue to run its U.S. operations as usual as it moves forward.

The authorization for the “first day motions” will allow the company to press ahead with the bankruptcy filing Midway completed last week (The complete filing is available here).   Payroll, price protection mechanisms and Market Development Fund obligations will be paid from the company’s cash position.

CEO Matt Booty said the company “remains confident in Midway’s ability to use this proven [bankruptcy] process to address our capital structure and explore our strategic alternatives.” He called the approval an “important first step.”

Not all creditors agree.  In an objection motion filed last Friday (which is embedded below) several voiced concerns suggesting that the bankruptcy, and the situation that created it, could evolve as an end-run around Midway’s debt obligations for the best interest of its majority owner but to the detriment of the creditors themselves. 

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Midway Games fought the good fight, twice extending debt repayment deadlines, but ultimately extensions weren’t a solution. With time again running out, today the company gave in and sought the protection of Chapter 11 bankruptcy. (The full court document is embedded below)

Midway had been under the gun since December when then majority shareholder Sumner Redstone sold off his 87.2% stake in the company.  Redstone’s firesale triggered early debt repayment clauses that put Midway on the hook for settlement of more than $150m in outstanding notes that otherwise wouldn’t have been due before 2025.

The default on those loans (which becomes automatic with bankruptcy), in turn, will trigger another $90 million in obligations to Redstone’s National Amusements that are  shared with Mark Thomas, the buyer of Redstone’s shares through a participation agreement.

Working with Lazard since November, Midway had hoped to find a way to avoid this. Click to Read More

On December 22nd, Gatehouse Media  filed suit against a Goliath charging the New York Times Co. with a host of copyright and trademark violations for practices at Times’ owned Boston.com website and its affiliated properties.  At issue was Boston.com’s aggregation and reprinting of headlines and their lead sentences (called “ledes”) from Gatehouse owned local news sites without Gatehouse’s approval.  The case was due to begin today with high stakes for the Internet news industry on the line. A settlement was announced instead.

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It’s hasta la vista for beleaguered electronics giant Circuit City.  The 60 year old company, which declared bankruptcy in November, was unable to agree to terms with a buyer in time to meet a Friday deadline.  Rather than seeking an extension, that likely would have only briefly prolonged life, the company will liquidate.  765 retail stores in Canada may still be sold, and are looking at January 23rd offer deadline,  but 567 U.S. stores are gone, effective March 31st.  Thousands of jobs will go with them. The merchandise sales will begin tomorrow.

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There’s an old saying that says if you owe a bank a thousand dollars they own you but if you owe them a billion, you own them.  While the numbers in the saying vary, today, media mogul Sumner Redstone seems to have validated the theory of the adage: if you owe enough, you’re in control. 

Redstone’s National Amusements, the controlling shareholder of CBS Corp and Viacom Inc, had $800m out of a total $1.6b  in debt obligations due to be repaid Friday.   The bill wasn’t paid.  Instead, the 15 lenders provided National Amusements an indefinite extension, the New York Post reported.

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Last March, the Newspaper Association of America singled out 2007 as the worst downturn in the newspaper print ad business in over 50 years. That was three months into 2008, well before the continued deterioration of the economy this summer and fall, before the banking and automotive industries imploded. 2008 is guaranteed to register as worse.

Newsprint costs have been up. Income down. (Newspaper ad sales were off 18% in Q3(Bloomberg)). Classified ads have further migrated to the Internet. Consumption habits are changing. Traditional local ad buyers (like car dealers) are spending much less.

Punctuating how bad it’s become, the history books will record 2008 as home to the first substantial newspaper bankruptcy in years, decades.

Monday, hindered with debt from last year’s leveraged buyout, the Tribune Company, parent to the Chicago Tribune, The LA Times and the Baltimore Sun, made truths out of early rumors and sought the protection of the Delaware court.

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Earlier this week, Sumner Redstone sold his majority stake in Midway Games at a substantial loss.  He took $100,000 and the assumption of debt in trade for an investment he spent more than $500m accumulating.  The decision, many believe, was made in part to help with ongoing negotiations to restructure an $800m loan held by his National Amusements company.  Turns out, however, his sales decision may force Midway’s management to renegotiate some debt of their own too.

The Chicago area game company is currently carrying more than $150m in senior convertible debt due in 2025 and 2026.  The contractual agreements for these loans, according to SEC filings, included repurchase obligations that are triggered by a material change of control.  Redstone’s sale of his 87%  stake is just such an event. 

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