A federal agency about to be saddled with an underfunded pension plan at the Daytona Beach News-Journal is fighting to block Cox Newspapers from getting $26 million from the newspaper’s recent sale. The agency argues it should get that money instead.
The Pension Benefit Guaranty Corp. urged a federal judge on June 24 to award it four claims totaling about $26 million from nearly $38 million in newspaper cash and property being held by the newspaper’s receiver. Atlanta-based Cox, a former minority owner of the newspaper company, contends it is entitled to nearly all of the $38 million because it is owed $154.4 million by the Davidson family, Cox’s former partner at the paper. (Cox held a 49 percent interest.)
A group of News-Journal retirees is supporting the federal pension corporation’s claims, saying the pension plan, weakened by the stock market’s sharp decline in 2008, eventually will need more money to continue payments to 1,100 present and future pensioners. The retirees also asked the judge to reinstate company-paid life insurance policies, worth $5,000 each, that were abruptly canceled for about 300 pensioners in May. The judge is scheduled to hear arguments on the issues Aug. 9.
The motions submitted to U.S. District Court Judge Antoon II in Orlando are the latest moves in a six-year legal battle between Cox and the Davidsons over control of the newspaper’s finances. Cox prevailed in most of the rulings, with Antoon deciding the Davidsons wasted millions in newspaper revenue by subsidizing nonprofit arts groups founded by the family.
When PMV, a Davidson holding company, was unable to complete a buyout of Cox’s shares to settle the fight, Judge Antoon ordered the paper sold and gave James Hopson, a Cox consultant, power to run the paper as receiver. Hopson did so for a salary of $2,000 a day. In March, Hopson sold the paper’s publishing operations for $20 million to Halifax Media, a subsidiary of Stephens Investment in Little Rock, Ark. Over the past two years, as advertising and circulation dwindled, Hopson eliminated 258 jobs, reducing staffing to 430.
The new owners, headed by Publisher Michael Redding, have continued publishing a semblant of the morning paper under the same name along with several weekly shoppers. They declined to take over the newspaper’s pension plan, and Hopson in April formally petitioned the federal insurance fund to assume responsibility for the plan as of June 30.
The federal pension agency has acknowledged negotiating with Hopson’s lawyers since October 2009, but has not announced yet when it may take over the plan. In its filing, it told the court it had intended to terminate the plan March 23, prior to the sale of the newspaper to the Redding group, but Hopson refused to execute a termination agreement with the Pension Benefit Guaranty Corp. at that point. The early termination likely would have depleted the News-Journal Corp.’s available cash.
The termination date is a concern for retirees in the 55-64 age bracket because it establishes when they will get access to the PBGC’s health coverage tax credits, which can cover up to 80 percent of their medical insurance costs. Scores of senior workers who lost their jobs in a 2008 cutback are scheduled to lose their post-employment COBRA group coverage June 30 and will face sharply higher rates if they purchase individual policies.
The newspaper assets being fought over include about $18 million in net proceeds from the sale to Halifax Media, plus $12.8 million in spare cash. Cox also wants several real estate parcels that it estimates can be sold for $6.6 million, plus the Davidson poster-art collection, valued at about $600,000, that used to hang in News-Journal corridors and stairwells. Cox also wants any judgments that may result from any other litigation against the Davidsons, such as an ongoing dispute over money the Davidsons spent on legal fees fighting Cox.
Hopson contends the $154.4 million that Cox is owed by the Davidsons’ PMV holding company takes priority over all other claims against the newspaper’s sales proceeds. However, the PBGC, likening the newspaper’s situation to a foreclosure, said Florida law requires Hopson to pay off all other creditors, including the PBGC, before it gives the remainder to Cox.
At a minimum, the PBGC motion added, the PBGC is entitled to a share of the $12.8 million cash on hand that the paper had accumulated prior to the sale. The Davidsons and their PMV company also have filed objections to Hopson’s liquidation plan, saying it favors Cox while leaving nothing for the pension fund and some of the other creditors.
The PBGC in Washington, D.C., is supported by $2 billion a year in premiums collected from 29,000 defined-benefit pension plans and about $6 billion a year in earnings on its reserves. It currently is paying out about $4.5 billion a year to 744,000 retirees in insolvent plans. It estimates its potential long-term expense from additional pension plans in danger of defaulting could total $168 billion, triple the risk level it recorded in 2008. However, PBGC officials say they have no plans to seek a bailout from Congress.
While retirees are confident the PBGC will end up fully insuring their modest pensions – most of which are well below $1,000 a month — the sudden life insurance cancellation by Hopson has rankled them.
“For years, the company promised employees they would have a $5,000 paid-up policy when they retired,” said Thomas S. Brown, one of seven retirees who are among those intervening in the Cox vs. News-Journal lawsuit. “That promise was repeated in the severance packages the company handed out over the past two years. Then on May 1 we received a note saying the policies would expire unless we took over the premiums ourselves. It’s a pathetic way to treat people who worked for notoriously low wages for decades. For some of our elderly retirees, this tiny policy was the only coverage they had.”
The asset distribution plan submitted by Hopson served notice that Cox might also claim an unspecified amount of money from the sale of the News-Journal Center, a performing arts center, to Daytona State College. The Davidsons responded that such a claim would be unfounded because the newspaper never owned the center and Hopson himself had approved giving the college responsibility for the center’s naming rights held by the paper.
It was the $13 million naming-rights deal that touched off the war between the Davidsons and Cox. The Davidsons contended the money to place the News-Journal name on the downtown landmark was well spent because it enhanced the newspaper’s reputation in the Daytona Beach community. Cox countered it was just a ploy to plug a gap in the building’s $30 million construction financing. The center, proposed by the late Tippen Davidson, originally housed Seaside Music Theater, whose orchestra was conducted by Davidson. After Cox successfully challenged the News-Journal’s subsidy of the theater, the repertory company shut down.
Most of the information above is based on a news release prepared by a group representing News-Journal retirees in the Cox Enterprises vs. News-Journal Corp., et al. case. More details can be found on the group’s Facebook page.