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Local Star Tribune creditor has confronted unions

The local investment group that is the largest secured lender for the bankrupt Star Tribune had a confrontation with labor unions a few months ago over another company that was on the ropes.

The local investment group that is the largest secured lender for the bankrupt Star Tribune had a confrontation with labor unions a few months ago over another company that was on the ropes.

In September, protesters assembled by the United Steelworkers picketed the Minnesota offices of Wayzata Investment Partners after the company took over a bankrupt paper mill in Oregon, fired the employees and made them reapply for jobs that came with slashed wages and benefits, Reuters reported.

The Star Tribune company revealed Friday in documents filed in U.S. Bankruptcy Court in Manhattan that Wayzata Investment holds $58 million of the newspaper’s debt, making it the largest among five major secured lenders. The newspaper is seeking to reorganize in its Chapter 11 filing.

When I called Wayzata Investment and introduced myself on Friday, the woman who answered the phone told me, “No comment. Thank you,” and hung up before I had a chance to ask a question.

The Oregon case does not make a pattern, of course, or lead inevitably to the expectation that the investment firm would stomp on the Star Tribune’s unions if it gained any control over the newspaper. 

Indeed, it’s a safe bet that concessions will be squeezed from the Minneapolis unions no matter who takes over. About two-thirds of the Star Tribune’s 1,400 workers are organized, and labor costs are a significant factor in the newspaper’s business equation.

But the dustup in Oregon does give a glimpse into the operating style of an investment firm that often steps into failing businesses.

Reapply for jobs
In May last year, the former Pope & Talbot paper mill in Halsey, Ore., shut down after the company failed to reorganize under Chapter 11 and moved to liquidate instead. A buyer won the company in a bankruptcy auction and began negotiating with its unions, the Steelworkers told Reuters. But the sale was challenged in bankruptcy court, and Wayzata Investment was awarded the company in a second auction.

Wayzata Investment refused to negotiate with the unions and fired longtime workers but said they could reapply for their jobs, the Portland Oregonian reported. Applicants were offered about 85 percent of what they had earned previously in the same positions, and workers who had enjoyed up to seven weeks of vacation a year were told they would get one week in the first year and then build up to a maximum of four weeks.

In June, about half the workers went back into the mill under those terms, the Oregonian said.

In September, 50 Minnesota union members joined two officers from the Oregon unions at a protest outside the Wayzata offices of the investment firm, according to the labor publication Workday Minnesota

In October, the Steelworkers announced they had ratified a new six-year contract with the company, at that point named Cascade Pacific Pulp LLC.

“The union was successful in regaining main provisions of their former contract,” the Steelworkers said.

Among other provisions, the plant’s workers won a 12 percent immediate wage increase with back pay for the five months they were without a contract. They also won modest future raises, extra pay for night shift workers, and rollbacks in increases the company had imposed on their share of health insurance premiums.

In one sense, the Oregon workers were more vulnerable than union members at the Strib. In Oregon, the workers had no successorship clause in their original contract, meaning that it ended when the business was sold. The Newspaper Guild, which represents newsroom workers at the Star Tribune, does have some successorship language in its contract.

Opportunities in debt
Comb through bankruptcy court records and you find the name Wayzata Investment Partners in several cases. In some cases, the distressed companies were forced to liquidate; in others, they successfully restructured.

Wayzata Investment says on its Web site that it focuses on “opportunities in undervalued debt, equity and assets.” The firm was formed, it said, in May 2004 after a management buyout of the former CFSC Wayland Advisers, Inc., a subsidiary of Cargill, Inc.

The court documents don’t specify when Wayzata took on the largest share of the Star Tribune debt or what it actually paid for that share. But the Star Tribune reported on Saturday that the newspaper’s $392.5 million in first-tier debt had been trading at 20 to 25 cents a share.

Do the math, and it’s possible that Wayzata Investment may have bought its $58 million share and the right to a large say in the fate of the Minneapolis newspaper for a mere $14 million or so.

And the real total current value of the newspaper may be less than $100 million, compared to the $530 million that Avista Capital Partners paid for it in 2007.

The other first-tier lenders are Credit Suisse ($46.7 million) Angelo Gordon & Co., LP ($44.9 million) Davidson Kempner Partners ($43.9 million) and General Electric Investment Corp. ($38.6 million).

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