Johnston Press runs out of paper

• Edinburgh-based Johnston Press is being put into administration, and its assets transferred to bondholders.

• The new owners want to show commitment to staff, suppliers and customers, with a cut in debt and £35m extra to keep more than 200 titles going. That commitment does not extend to the pension fund.

• Johnston's biggest shareholder plans legal moves to unwind the administration.

Plunging Johnston Press into administration may be one of the better outcomes for the papers and websites the company has controlled - many of them important to communities from Fraserburgh to Eastbourne.

The bondholders have been taking nearly £20m a year out of the business annually at a eye-watering interest rate of more than 8% on the £220m debt.

To pay that and reduce the debt pile, the titles have taken savage cuts to costs, with little left to invest in the transition to digital news publishing. It has hugely hobbled one of Britain's largest news publishers at a time it needed to invest heavily in change.

Management had made progress in getting the debt down. Having splurged on local titles in the pre-crash years of cheap credit, the debt peaked at nearly £800m.

In 2005 alone, Johnston spent around £500m on buying newspapers, including £160m for The Scotsman stable of titles in Edinburgh.

The financial crash wasn't the main problem - it was carrying debt in an industry where readers and revenue were in sharp decline. The chief executive David King now says that there was no way of knowing back in 2005 what Facebook and other internet giants would do to the advertising base.

(I think there was. I was working in another newspaper group, Google was already bearing down on it and many such news publishing bosses either could not see or perhaps could not understand the threat posed by online publishing. As a general rule, you didn't get to the top of that career ladder by brain-power.)

Facing a debt repayment deadline next June, with no sign of a refinancing deal, and with the market valuation of the whole company below £3m, Johnston Press was cornered. In the past five weeks, it has sought a buyer, but failed to find one with enough to tackle the debt.

The deal it has struck with bondholders is that they keep the titles together, take a haircut on the debt, and put new funding into the papers to keep the presses rolling.

On Saturday afternoon, the announcement of the court action being complete has come with detail of the size of the deal: debt cut by more than 60% from £220m to £85, and rolled over to 2023, while there is an injection of £35m to help news operations get back on their feet.

Losers

That's while they shed the defined benefit pension scheme. Its trustees take that to the Pension Protection Fund, and if that agrees to take on the Johnston pensioners, it will pay 90% of pension fund members entitlement, once they reach pension age.

Those already above pension age and receiving their pension should (warning: I don't pretend to have read the small print) get their existing entitlement, but instead of uprating it each year by inflation as measured by the retail price index, they will be tied to the (usually lower) consumer price index. Who pays for all this? People in other occupational pension funds.

The most obvious losers through this are the shareholders, whose asset is now deemed worthless. Trading has been stopped. Administration puts them at the end of the queue of creditors.

The largest shareholder is Norwegian entrepreneur and self-styled disrupter Christen Ager-Hansen and his Custos Group, based in London. He has built up a 25% stake which was worth, in recent weeks, not much more than £1m.

He has been furious at the Johnston board's handling of the titles, and eager to get his hands on them. At first, he had a plan to put Alex Salmond in the chair. That plan was dropped, but he said last month that he had a different chairperson, board and chief executive ready to install.

According to a source at Johnston, they tried repeatedly to get him to engage with the sale process, but got no response.

However, he's now promising he will respond in court, seeking a change of administrators, and seeking an injunction to unwind the transaction. Amid a number of possibly defamatory claims about the Johnston Press board, he says they have a conflict of interest in their current course of action.

"I'm a trained warrior," he told me. "I will fight and fight and fight to make this board accountable for the mess they have made."

Disentangled

The new owners are led by GoldenTree Asset Management. Fidelity is a better known investor as part of the consortium, along with Benefit Street and Carval. They have set up holding companies for ownership of the titles. Such companies do not have a track record of investing in titles for the good of the staff or the communities they serve.

But the spin on day one is that that is precisely what the new owners are doing. Supporting the Johnston titles with a debt write-off and new investment is being aligned with the success of an underlying business that remains "profitable and cash-generative".

What the consortium now controls, called JPIMedia, is a new company that could be broken up, but is probably more valuable as an integrated whole. Without debt, it's still generating profit, though recent revenue figures have been sharply down.

The costs that have been stripped out have often been through centralisation of management, back office, advertising sales and journalism. That makes the titles difficult to disentangle.

So what would make most sense - unless Mr Ager-Hansen scuppers the plan - is a sale to a company that knows more about publishing news. Better still for the titles if a new owner has deep enough pockets to invest in that transition to digital (which is, as it happens, what Mr Ager-Hansen has been wanting to do).

Even if it isn't sold on (and David King is to be chief executive of the new company), the drop in debt means the outcome should already make the short-to medium-term future better than those recent, truly painful years of cuts for these Johnston titles.

But in common with many other conventional news publishers, in the longer term, they will still struggle to find a new business model that works.

This article was amended following the announcement that JPIMedia had court approval to take on the assets of Johnston Press.