Judge’s order allows Star Tribune to avoid liquidation

The Star Tribune skirted bankruptcy’s equivalent of a roadside bomb on Tuesday when it won permission to tap funds to pay operating expenses while it tries to reorganize.

U.S. Bankruptcy Court Judge Robert Drain said in an order filed late Tuesday that the newspaper can spend money at its disposal to make its payroll and pay vendors, suppliers and others engaged in the “orderly continuation” of the business.

But Drain put the newspaper on a fairly short leash. Creditors will get another say about paying the bills on Feb. 6 when Drain has scheduled another hearing on the matter in the Southern District of New York where the case was filed.

For now, though, the permission was crucial, said bankruptcy experts. Without it, the employees and the people who sell the newspaper ink, reporters’ notebooks, etc. would have had even more reason to worry about their next checks. The Minneapolis-based newspaper could have faced liquidation within a few weeks.

The life blood of a company in the version of bankruptcy the Star Tribune has filed, Chapter 11, is cash to keep operating while it reorganizes, said Jack Williams, resident scholar at the American Bankruptcy Institute and also a professor specializing in bankruptcy law at Georgia State University.

Until recently, most companies in Chapter 11 proceedings secured the equivalent of bridge loans to cover operating costs for the year or so it typically takes to work through Chapter 11. In today’s financial crisis, though, that money is very difficult to get, Williams said.   

The Star Tribune’s lawyers indicated last week that the company could pay its day-to-day bills if the court gave it permission to use funds that were frozen when the newspaper filed its case last Thursday.

The newspaper had been profitable, though less and less so. Its problem was the debt the current owners took on when they bought the paper in 2007. Buyers led by the New York-based private equity group Avista Capital Partners put up just $100 million of the $530 million they paid for the newspaper and borrowed the rest.

Chris Harte, the Star Tribune’s publisher and chairman, said Drain’s order solves the company’s immediate needs for cash unless revenues worsen, the newspaper reported.

The revenue plummeted last year pulling down net earnings before debt payments and taxes to $31 million compared with $59 million in 2007 and $115 million in 2004, David Montgomery, the Star Tribune’s chief financial officer, said in an affidavit filed with the court last week.

Drain’s order did not itemize the sums the newspaper is allowed to spend for the particulars of its ongoing operation. MinnPost’s David Brauer reported here  that one item cleared for payment was the buyout money former employees got in severance deals they accepted earlier this month.

In other court action on Tuesday, the Star Tribune moved to set up rules suppliers would have to follow if they tried to repossess items the newspaper bought on credit before the bankruptcy filing – everything from office supplies to the little plastic bags that keep the paper dry on your doorstep. Many of those unsecured creditors may get paid in the normal course of operation; but some are likely to take a haircut on bills that were due at the time of the filing, experts said.


Sharon Schmickle reports on foreign affairs, science and other topics. She can be reached at sschmickle [at] minnpost [dot] com.

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Comments (3)

  1. Submitted by tom moore on 01/21/2009 - 01:36 pm.

    regarding the use of “roadside bomb” in the opening sentence: a newspaper being liquidated really shouldn’t be compared to u.s soldiers having their limbs and skulls ripped away by bombs in iraq. bankruptcy doesn’t have an “equivalent” to a roadside bomb (nor are employees “nuked”, as another writer put it in another article on minnpost today).

  2. Submitted by Douglas Rzeszutek on 01/25/2009 - 11:04 pm.

    If Chris Harte thinks that hard work and sacrifice by the employees is going to solve the problem, he must think the same way everyone thought that the Titanic was unsinkable. Their are alot of “employees” who’ve not made any sacrifices to this end.
    Mainly, all the “Pres’s, and V.P.’s. Avista
    created this problem by borrowing way too much money. None of the employees borrowed this
    money, the Star Trib, did not borrow the money.
    Avista did, now the employees are expected to
    bail out a bunch of already rich guys going
    back on the money “they” owe. How sad. I wonder
    what my home lender would say if I called and said I”m not going to make my payments anymore!

  3. Submitted by Campbell Campbell on 01/27/2009 - 09:34 pm.

    What a sign of the times. Unaccountable corporate sharks at the top. Avista, Chris Harte and his colleague Par Ridder have really destroyed a potentially hopeful future for the Star Tribune. Avista’s hired expertise in negotiating skills and reorganization was no more than a union busting gang of thugs with white collars, grade inflated degrees, and overstated accomplishments. Avista’s focus has almost entirely rejected quality news reporting for what they perceived as a better use of the paper’s money. Taking out section by section, news article by new article, columnist by columnist has determined the fate of the Star Tribune to date. These decisions were very short sided mistakes that served to be incredibly disappointing and discrediting for the paper. If my performance record looked anything like Chris Harte’s, and the reorganization team of thugs; I would be fired and asked to pack up and not look back. Chris should fire himself and the union busting reorganizers. It’s time to get real reporters with credibility and real credentials, real negotiators that negotiate in good faith, and a publisher with integrity. The Star Tribune has only a handful of credible reporters left and my guess is that in the next round of buyouts they’ll lose these people as well.

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