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Sun newspapers: A ‘two-thirds off’ sale

The suburban newspaper chain’s creditors would buy the paper for a third of what they’re owed. The bankruptcy filing details falling ad revenue, rising debt, and post-bankruptcy executive comp.
By David Brauer

Saddled with at $107 million in debt, suburban publisher American Community Newspapers, Inc. will be sold for at least $37 million — a 65 percent haircut for lenders, which include the Bank of Montreal and General Electric Corp.

ACN, which publishes 42 local weeklies plus the Stillwater Gazette, and operates similar clusters in Dallas, suburban D.C. and Columbus, Ohio., filed for bankruptcy Tuesday. Management seeks at May 22 auction; a rival bidder would have to top the creditors’ offer of $32 million plus $5 million in post-bankruptcy financing.

As is always the case, the Chapter 11 filing makes public some details about the privately held company. In an affidavit, CEO Gene Carr pegs 2008 revenues at $68 million, and blames slumping sales the bankruptcy. A 13-week April-July projection in another filing equals $47 million on a full-year basis, though the spring-summer basis doesn’t include the Christmas selling season.

ACN claims print circulation of 1.3 million; 400,000 of that is in Minnesota. The chain also notes that its 85 “locally focused” websites rack up 7.4 million monthly pages views and 900,000 unique visitors, although no Minnesota-specific figures are available.

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For comparison, the Star Tribune says it totals about 90 million monthly page views, and MinnPost had 1.2 million in March. If ACN’s web totals mirrored the print-circulation split, local traffic would equal about 2.3 million page views and 300,000 uniques. That’s a skinny future if print gives up the ghost.

According to Carr’s affidavit, the company’s credit woes began June 29, 2008, when it defaulted on its revolving credit. The company subsequently missed $1.05 million loan payments in September and December.

The chain’s April-July operating budget projects weekly revenues of approximately $910,000. Payroll for the 490 employees averages $380,000; additional costs range from $517,000 to $817,000. Assuming revenues hold, the 13-week plan eats up $3.7 million of the $5 million debtor-in-possession financing, a weekly loss of about $280,000.

Meanwhile, another provision allows the purchasers to buy out CEO Gene Carr for $450,000 in cash — 150 percent of his $295,000 base pay — plus a year of benefits. A “Sale Incentive Program” would pay 33 other executives, directors and managers a collective $328,000 if the deal goes through. There’s no indication if current management would be retained.