Star Tribune employees showed up for work today to find they were unable to cash some recently issued paychecks and use company credit cards to pay for business expenses after the newspaper filed for bankruptcy last night.
But relief was on the way.
The newspapers’ attorneys filed petitions in U.S. Bankruptcy Court in New York requesting authorization to pay employees, vendors and the delivery crews that are critical to the continuing publishing and distribution of the newspaper. And late this afternoon, bankruptcy Judge Robert Drain said in an order that the Star Tribune is “authorized but not required” to pay wages, salaries and benefits to its employees as well as severance payments that had been promised before the bankruptcy was filed. The judge gave lenders until Feb. 2 to object to the order.
Such “debtor in possession” requests usually are granted for a company that is seeking to restructure and stay in business, said Jack Williams, resident scholar for the American Bankruptcy Institute in Virginia and also a law professor at Georgia State University.
For at least some of the employees, the relief could be short lived and tentative.
“This doesn’t mean they won’t be terminated soon,” Williams said. “That’s a different question.”
Curiously, the Star Tribune owners asked the court for a motion “authorizing, but not requiring, them to pay” wages and other compensation. The forms of compensation listed included the Retiree Medical Plan, severance obligations and retirement contributions.
In the blizzard of paper work the Star Tribune filed in court today, here are some highlights:
About half of the Strib’s workers are paid bi-weekly with some lag from the end of a pay period to the date the checks are cut. The newspaper owed about $2.5 million in wages and salaries when it filed the bankruptcy.
It also owes $900,000 in severance pay to employees who left recently. The document requesting authority to make the payments says the severance “will be paid out over many weeks.” It isn’t clear whether that means the latest wave of workers who took buyouts this month may have to wait a while for their checks. One source said that employees who got paper checks today were notified they may not be able to cash them until Tuesday.
The court documents list the following five as the largest first-lien lenders: Wayzata Investment Partners LLC ($58,060,595), Credit Suisse ($46,666,151), Angelo Gordon & Co., LP ($44,949,812), Davidson Kempner Partners ($43,879,737) and General Electric Investment Corp. ($38,625,000).
When the current owners — Avista Capital Partners,LP and Avista Capital Partners (Offshore) LP as well as the Christopher M. Harte 1992 Family Trust — bought the newspaper for $530 million in March 2007, they pledged all of their equipment, inventory, certain property and other collateral to the first lieners.
On June 30, the owners missed a $2.1 million quarterly interest payment due to a second tier of lenders. On Sept. 30 and Dec. 31, it missed payments to both the first and second tier lenders.
As of Dec. 31, the documents say, the newspaper had assets totaling about $493.2 million and liabilities of $661.1 million.
The Star Tribune would have been profitable in 2008 without its debt payments, interest and taxes.
One of the most critical and decisive points in any bankruptcy is the question of where the company will get cash to operate until it restructures, said Williams at the American Bankruptcy Institute.
The lifeblood of a company in bankruptcy usually is a bridge loan called “debtor in possession financing.” Such loans once were widely available, but in the current economic crisis, only a few lenders grant them and only a few highly qualified borrows can secure them.
If a company needs such financing and can’t get it, the company “will liquidate within 45 days,” he said.
However, the Star Tribune has said it doesn’t need that kind of financing. In the filing, the owners say “the debtors do not currently require post-petition financing, but they do require the use of the cash generated in the ordinary course of their business.”
They are asking the court to authorize the use of the cash they take in to pay the bills and wages rather than turn it over to the lenders.
The court’s ruling on that request will be crucial.
Sharon Schmickle reports on foreign affairs, science and other topics. She can be reached at sschmickle [at] minnpost [dot] com.