Bankrupt Star Tribune seeking new union deals

The Star Tribune is moving apace on a key component of its reorganization in bankruptcy court: seeking new deals with its labor unions.

Teamsters Local 638, which represents drivers, could decide as early as tonight on an offer from the company, said the local’s business agent Mark Rime.

Two other Teamsters locals also are well into considerations of new contracts.

The Star Tribune, long the largest newspaper in the Upper Midwest, filed for reorganization under Chapter 11 on Jan. 15 in the U.S. Bankruptcy Court of the Southern District of New York. Publisher Chris Harte has said the company expects to emerge from the bankruptcy in a financially stable condition and continue delivering the newspaper which sells 334,000 copies on weekdays and 552,000 on Sundays.

The unions’ representatives have signed confidentiality agreements that bar them from revealing details of the company’s proposals to the workers, said Andrew Staab, a St. Paul attorney who represents pressmen and plate makers in Teamsters Local 1M.

Staab would not characterize the proposal Local 1M received from the company except to say union members “have seen the offer and there has been a lot of grumble, grumble.”

But, Staab said, “We need to come back with a counterproposal or something. We can’t just flat out reject it, based on the fact that bankruptcy law allows for the company to put it on a fast track for contract abrogation.”

The union’s negotiating committee will meet this week to evaluate the offer, he said.

More than a year before the bankruptcy filing, the newspaper had begun to sharply reduce the ranks of its workers through layoffs and voluntary buyouts. About two-thirds of some 1,400 employees at the newspaper are organized in various unions.  

Newsroom employees represented by the Newspaper Guild agreed to more than $2 million a year in concessions last July in a three-year contract.

In the weeks before the filing, all of the unions rejected the company’s request for deeper give backs.

Now, the dealing will take place under the eye of the bankruptcy judge. Beyond the three Teamster unions, the Guild and four other unions representing smaller groups of workers are awaiting the outcome.

While the various unions have different goals and worries in the talks, they have sounded a consistent argument: that the financial crisis is largely due to the debt that was acquired when Avista Capital Partners bought the paper in 2007. The New York-based private equity group put up just $100 million of the $530 million it paid for the newspaper and borrowed the rest.

Without debt payments and related expenses, the newspaper would have been turning a profit, though less and less so.

“The Star Tribune is not in bankruptcy because of its labor costs, but unfortunately the bankruptcy code allows for labor costs to be an easy target,” Staab said.

The unions have little leverage in the court — especially given the sorry state of newspapers across the country and the economy in general, said Gregory Duhl who teaches bankruptcy law at William Mitchell College of Law.

“Their leverage is to not work, but that doesn’t do them any good in this economy,” he said. “If the employees stop working, the newspaper is going to go out of business. . . . It is the nuclear option, and it doesn’t help anybody on any side.”

Typically, though, some level of negotiating would take place because the court would prefer to see the company and the unions reach deals that all sides can agree to, he said.

“Ultimately the court could step in and say for the good of the creditors the old union contracts have to be voided and new contracts have to be issued against the will of the unions,” he said.

But Staab, said he does not believe the company’s goal is to kill the unions.

“The Star Tribune has been an institution in the state of Minnesota, and I don’t think anybody believes the Star Tribune is going to go away,” he said. “The labor organizations that represent these skilled professionals working at the Star Tribune are not going to go away either. The Star Tribune realizes that.”

Crucial operating cash
Looming over the labor deals and everything else is the question of whether the newspaper will have sufficient revenue to continue convincing creditors it makes economic sense to seek to reorganize and stay in business.

U.S. Bankruptcy Court Judge Robert Drain said in January 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 has kept the newspaper on a fairly short leash by twice putting off a final hearing on that “cash collateral” arrangement. A hearing that had been scheduled for last Friday now is set for Feb. 23.

The newspaper’s 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.

Then, in early February, Star Tribune publisher Chris Harte said revenue was deteriorating faster than expected, MinnPost’s David Brauer reported.

“January’s ad revenue drop was larger than any month last year — in fact, the largest anyone can remember and probably the largest in decades,” Harte said in announcing benefit cuts for non-union employees.

“February is starting out with similar declines,” he added.

The revenue declines may have nothing to do with the court’s decision to put off the final hearing on the cash collateral arrangement. It is not unusual for such hearings to be delayed for a variety of reasons, said Edward Adams, a professor at the University of Minnesota Law School who specializes in bankruptcy law.

But the deteriorating revenues are an ominous sign, he said.

The millions of dollars in cash the company spends for week-to-week operations are a “very big deal,” for everyone involved, he said.

They are tempting to creditors because they represent assets that could be collected to compensate for the company’s unpaid debts.

For the company, he said, it is the “lifeblood of the business,” the main defense against liquidation.

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

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Comments (6)

  1. Submitted by Patrick Guernsey on 02/16/2009 - 09:39 am.

    So what this is really about is lowering the rank and file’s standard of living so that the banks can be paid. Meanwhile, their delivery system has deteriorated and they choose to let go of big talent like Nick Coleman. Sounds like the Strib is in a death spiral….Sad news indeed!

  2. Submitted by myles spicer on 02/16/2009 - 01:04 pm.

    Though I often read my online news sites now, as a 50 year subscriber to the Strib, I would dearly miss my morning hard copy.

    This is a rear guard action to forstall, what I guess is the inevitable. Onward we go into the digital age.

    I think I will miss the dear daparted past.

  3. Submitted by dan buechler on 02/16/2009 - 03:57 pm.

    Patrick, I am curious to know facts on their “deteriorating delivery system” perhaps it is due to lopping off 200+ people from their circulation departments and then buying high end luxury vehicles and plane fares.
    Honestly though everyone is to blame here except for some of the carriers and other lower cost workers.

  4. Submitted by Patrick Guernsey on 02/16/2009 - 09:09 pm.

    I finally stopped taking the paper because I was tired of getting it out of the snow. I was a Strib Carrier for 6 years, newer people were paid less, they made you work if you were sick, and they were verbally abusive to immigrant carriers. I quit about 4 years ago, before McClatchy sold them out. I suspect the conditions are far worse now.

  5. Submitted by dan buechler on 02/17/2009 - 03:02 pm.

    Thank you Patrick thats a side you never hear about.

  6. Anonymous Submitted by Anonymous on 02/19/2009 - 08:43 pm.

    Capitalism is on the skids to oblivion and its taking us all down the road to perdition. How much longer will working people put up with a system rotten to the core.

    If you take a bite from a rotten apple you chuck it… we should do the same with capitalism.

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