In a memo posted on the Romenesko blog, MediaNews Group execs Jody Lodovic and Dean Singleton confirm that the reason they sold the Connecticut Post and seven other papers to Hearst was to raise capital to pay down a crushing debt load. With the proceeds, MNG was able pay off almost 25% of its bank debt and negotiate more favorable terms for its remaining loans. Quoth the memo:
In exchange for the large repayment, our banks agreed to relax certain key aspects of our credit agreement to provide more room to navigate over the coming years. In sum, the sale, coupled with the changes to our credit agreement, provide us the runway we need to execute our strategic plans, position the Company to be opportunistic, and continue to lead the industry into the future.
Given the fact that Standard & Poor's had downgraded MNG's debt to a CCC rating, which is in junk bond territory, it's more likely the sale saved the company from slipping into bankruptcy.