The Star Tribune said it skipped a $9 million quarterly debt payment to senior creditors to save cash as it tries to restructure its debt.
All options were on the table, including a bankruptcy filing, Chairman and publisher Christopher Harte told the newspaper in a story published Wednesday.
"We are looking at an incredibly wide range of options, but nothing's imminent," said Harte.
Harte said the newspaper is profitable, but it's carrying $432 million in debt. Avista Capital Partners, which bought the state's largest newspaper in March 2007, doesn't disclose revenue and expense figures for the Star Tribune.
In a memo to employees obtained by online newspaper MinnPost, Harte reassured employees that the paper is "a fundamentally sound franchise."
A newspaper spokesman didn't immediately return a call from The Associated Press.
The newspaper defaulted on its loan agreements earlier this year, and stopped making payments to junior lenders in June.
The Star Tribune isn't the only paper struggling. Last week, McClatchy Co. negotiated concessions with its lenders to gain flexibility on its $1.175 billion debt to help the company avoid a potential default. McClathy agreed to put up more collateral and pay higher interest rates.
Ken Doctor, a media analyst for the research firm Outsell Inc., said the Star Tribune is suffering the same big revenue declines seen throughout the industry due to advertising's migration to the Web and the economic slowdown.
Doctor said the newspaper also took on significant debt when it was purchased. As cash flow has declined, so has its ability to service that debt.
Now the company is faced with a "very constrained number of choices," which include renegotiating with its debtors without much leverage or filing for bankruptcy, Doctor said.
Mike Simonton, media analyst at Fitch Ratings, said that by missing the payment, the newspaper could be ceding a good bit of control over the company to its lenders.
"If they are unable to make a payment within a specified grace period, that would be an event of default," he said. "That puts the bank in the driver's eat."
The company has difficult negotiations ahead of it, he said, because it's been very hard for newspapers to predict cash flow years in advance, given the industry's structural problems and the overall economy.
Selling the newspaper isn't necessarily a good option, either.
"There are a lot of assets on the market right now, and there doesn't seem to be much interest," Simonton said.
The Star Tribune employs 1,405, including 307 in the newsroom. As of March 31, it had daily circulation of 322,362, according to figures from the Audit Bureau of Circulations.
(Copyright 2008 by The Associated Press. All Rights Reserved.)