Strib on verge of bankruptcy, NY Post reports

[Note: This story now includes the Star Tribune’s official statement, released late Sunday afternoon. The statement is reprinted at the end of this post.]

The Star Tribune is “on the brink of bankruptcy … after failing to meet its debt obligations,” New York Post says in its Sunday edition.

However, in a statement released later Sunday, Star Tribune publisher, CEO and part-owner Chris Harte denied a key aspect of the Post report. “The facts are that the Star Tribune currently has sufficient liquidity and is current on all its debt payment obligations,” he wrote.

Harte confirmed one aspect of Post reporter Zachery Kouwe’s story: that the Strib has chosen Wall Street’s Blackstone Group to help restructure its finances.

Klouwe intimated the Blackstone’s selection put the Strib a step closer to a creditor takeover; bankers would then sell the paper “after dramatically cutting costs” — which presumably means major staff cuts at the region’s dominant local news outlet.

According to Harte: “We recently hired the Blackstone Group to help us evaluate alternatives to our current capital structure, but that hardly merits a conclusion that we are near bankruptcy.In fact, Blackstone has substantial expertise
in balance sheet restructurings through means other than statutory proceedings like bankruptcy.”

As I wrote earlier today, I had not heard of any debt-repayment violations. However, my understanding from knowledgeable sources is that the debt crunch hits later this summer.

From what I’ve heard, the Strib must show lenders how they
will cut at least $10 million in expenses by then. Sources also say the paper has
identified at least $5 million in cuts, but most may not come from
local newsgathering.  (The money could
also come from enhanced revenues — extremely unlikely since those
numbers are falling, spurring the current problems.)

Harte’s statement does not address these numbers.

The Post’s timing is interesting; the Strib begins collective bargaining with its union Thursday. The current contract expires July 31. Could the story be a plant to scare labor
into concessions?

Unlikely. Management and labor have been engaged in fitful pre-bargaining
mediation, and one result is that the union hired an accountant to see the
paper’s books. That’s bound up in a confidentiality agreement, but there are
few financial secrets as both sides try to hammer out a plan satisfying lenders
before, not after, the debt crisis hits.

Before Harte issued his statement, Strib Guild co-chair David Chanen said management has communicated a sense of financial “urgency,” but “the ‘bankruptcy’ word has never come up.”

He added, “They’ve been saying for months that they’re in stressful economic times, and we know cost-cutting is a top priority [in discussions with] unions across the company, but they’ve never mentioned bankruptcy.”

As the Post story notes, if the banks repossess, Avista could lose its $100 million cash investment. Harte, who has separately sunk a chunk of his own wealth into the deal, could lose tens of millions more.

For now, though, the “brink of bankruptcy” is more old
news than new.

Harte has already disclosed “precipitous” revenue drops and it’s been known
since January that the paper’s cash flow might dip below its debt payments.And the threat that bankers could own the paper has hovered for at least as long.

Here’s the statement from Strib publisher Chris Harte:

On Sunday the New York Post
reported that the Star Tribune has failed to meet its debt obligations and
alleged that we are “on the brink of bankruptcy.”

The facts are that the Star Tribune
currently has sufficient liquidity and is current on all its debt payment
obligations.

While it is true that we face
declining ad revenue—as do most major metropolitan newspapers—we have been
working aggressively to get our cost structure in line with current revenue
shortfalls. This is the most challenging time our industry has ever faced, so
we are in constant and constructive communication with our lenders about the
state of our business.

We recently hired the Blackstone
Group to help us evaluate alternatives to our current capital structure, but
that hardly merits a conclusion that we are near bankruptcy.  In fact, Blackstone has substantial expertise
in balance sheet restructurings through means other than statutory proceedings
like bankruptcy.

It’s important to emphasize that
none of the current discussions we are having about our financial structure has
any effect on our current operations, which are generating positive cash
flow.  We are focused on maintaining the
high quality of our journalism and community service as we have for the past
140 years.