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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.

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Comments (5)

I have been wondering: has Forum Communications out of Fargo every considered buying the Strib? I would think they could get a premier paper for a song and they have a record of doing good work in the local community.

The fact is that you don't hire Blackstone if you're not worried about your liquidity. The Strib might be liquid now, but I suspect they see an issue going forward. My hunch is that it's in the 9-12 month window, given Blackstone's usual timing.

There are a couple of telling lines in the press release from Chris Harte:

"..we have been working aggressively to get our cost structure in line with current revenue shortfalls."

and

"..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."

It will be interesting to see how those downtown parcels owned by the Strib play in all this. While I am sure they have declined in value lately, selling those parcels would seem to bring about a quick (albeit a one-time) infusion of cash. Zygi load up your check book, it might be a pretty good time to buy some downtown real estate!

It may be that the Blackstone assistance is not tantamount to bankruptcy, but the numbers do not look good. $100 million down on a $530 million purchase is a lot of promise when the subscriber numbers and advertising purchases are going down. The Post article mentions other sales on similar heavy debt loads.

I can't imagine increased sales when favorite columnists and broader reporting coverage are pulled.

Seems like the options for the Strib are radically changing the business model, or dying a slow death.

Or, say, radically re-invigorating the news organization and seeing if they can't win back readers (or, in online adspeak "eyeballs"), whether online or off...and seeing if that might lead to more dollars.

What do you think happens to the Strib over the next couple years?