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GateHouse Media headed for Ch. 11, then new co.

NEW YORK (AP) -- GateHouse Media Inc., which owns over 400 community newspapers and hundreds of local websites, is restructuring its $1.2 billion debt in a prepackaged Chapter 11 bankruptcy filing.

Newcastle Investment Corp., which owns 52 percent of GateHouse's debt, then plans to combine GateHouse's media empire with the 33 Dow Jones Local Media publications that it recently bought from News Corp. for $87 million. Newcastle would then spin off those operations to form a new publicly traded company called New Media.

Benefiting from growing digital revenue and cost cuts, New Media could invest $1 billion over three years to purchase more newspapers and shopping publications at discounted prices, Newcastle said in a presentation to investors on Wednesday.

GateHouse became over-leveraged during the 2008 financial crisis, but over the past four years has doubled digital revenue and cut $150 million in costs, Newcastle said in the presentation. GateHouse reported total revenue fell 5 percent to $491 million for fiscal 2012. Digital revenue rose nearly 27 percent for the full year, though the company doesn't break out digital revenue in dollar terms.

The prepackaged bankruptcy reorganization already has the support of other creditors, who will have the option to convert their positions to stock in GateHouse or cash at terms of 40 cents on the dollar, Newcastle said in a statement. Newcastle, which otherwise primarily owns health care real estate such as senior living facilities, said it will end up owning a 59 percent stake in New Media that it estimates will be worth about $230 million. It expects New Media could pay out a substantial portion of its cash flow as a dividend.

GateHouse runs local papers such as the Middletown Transcript, Mount Shasta Herald and Dover Post. Some of the Dow Jones local papers that will come under its umbrella are the Times Herald-Record in Middletown, N.Y., the Cape Cod Times in Hyannis, Mass., The Record in Stockton, Calif., The Standard-Times in New Bedford, Mass., The Pocono Record in Stroudsburg, Pa., The Herald in Portsmouth, N.H., The Mail Tribune in Medford, Ore. and The Daily Tidings in Ashland, Ore.

Both GateHouse Media and Newcastle Investment are affiliates of Fortress Investment Group LLC, which specializes in buying troubled businesses.

Newcastle shares dipped 2 cents to close at $5.76 Thursday. The stock gained 6 percent on Wednesday when it first announced the move.