Star Tribune nears end of bankruptcy
When the Star Tribune emerges from bankruptcy protection later this month, Minnesota's largest newspaper will be far leaner than it once was - but with the same pressure to generate revenue.
The Strib, as locals call it, used Chapter 11 to wipe away nearly $400 million in debt and extract $20 million annually in union concessions that the 142-year-old newspaper considered essential to its survival.
Financial engineering aside, its main challenge while it hopes for an advertising drought to end will be to deliver a quality product to readers in print and online with a newsroom staff nearly one-third smaller than it was two years ago.
To keep readers buying the newspaper, the Star Tribune has delayed posting some in-depth Sunday stories online. The Star Tribune also has experimented with a TV-style newscast online and may charge readers for access to some or all stories on the Internet.
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A federal judge is expected to approve the Star Tribune's reorganization plan following a hearing in New York on Thursday.
Under the plan, the main lenders of the nation's 14th largest daily newspaper - led by investment group Angelo, Gordon & Co. - would become its new owners and choose new management. Existing owners, including majority stakeholder Avista Capital Partners, would be wiped out.
The Star Tribune says top lenders and a committee of unsecured creditors - those who stand to lose virtually all of what they had lent because first-tier lenders get their money first - support the reorganization plan. Representatives for all either declined comment or didn't respond to requests by The Associated Press.
The newspaper expects to emerge from bankruptcy protection on Sept. 28, with first-tier lenders getting new common stock and secured notes worth 32 cents on the dollar and most others just a penny. Besides Angelo, Wayzata Investment Partners, Credit Suisse Group and GE Capital were among the senior lenders at the time of the bankruptcy filing.
Publisher Chris Harte, who will lose the 4 percent ownership stake held by his family trust, plans to step down, although a date hasn't been set.
A steering committee of main lenders has named four new board members, including former Wall Street Journal publisher L. Gordon Crovitz and Michael E. Reed, head of GateHouse Media Inc., a Fairport, N.Y.-based chain of about 90 daily newspapers.
Mike Simonton, a Chicago-based media analyst with Fitch Ratings, said choosing board members with media experience "demonstrates a commitment to solving some of the problems (that are) operational rather than just pursuing persistent financial restructuring."
The Star Tribune, with a weekday circulation of about 321,000 and Sunday at 509,000, is one of at least 11 newspaper companies that have sought bankruptcy protection over the past year as the industry saw advertising revenue plunge because of the recession and the availability of low-cost alternatives on the Internet.
Triple Crown Media Inc., which owns six daily newspaper in Georgia, filed for Chapter 11 on Monday.
Compounding the Star Tribune's ad troubles were the debt and interest obligations that resulted from McClatchy Co.'s 2007 sale of the newspaper to Avista, which put up only $105 million in equity toward the $530 million price.
The Star Tribune scrambled to cut costs - it trimmed its expenses 21 percent, or $56.2 million combined in 2007 and 2008 - but revenue was falling even faster, by $110.1 million during the same period, a 31 percent decline.
And though it says its operations have remained profitable, interest payments of $35 million last year exceeded adjusted operating earnings by $4 million.
By filing for Chapter 11 on Jan. 15, the Star Tribune could reduce its debt and interest obligations. It also got concessions from all 10 unions, including the Teamsters local whose fleet drivers threatened to strike, something that the union said likely would have shut down the newspaper.
The Star Tribune still projects a small net loss of $1.8 million in 2010 on revenue of $184 million - but the loss would have been higher without restructuring (The newspaper did not provide other projections or net earnings figures from other years).
Harte said he was proud that the Star Tribune will be among the first newspapers to emerge from bankruptcy protection, while making smart cuts to preserve "what is best about this paper."
He said the Star Tribune's finances should improve if advertising begins to slowly recover next year, as the newspaper expects. Labor concessions and other changes being made, he said, will leave the Star Tribune "stronger today than it has been in decades."
Yet Brian Tierney, publisher of The Philadelphia Inquirer and Philadelphia Daily News, said the Star Tribune's post-bankruptcy debt of $100 million might be high enough to eventually prompt a return to bankruptcy. Tierney's newspapers have had a rougher ride in Chapter 11 as they try to emerge debt-free.
Harte disputed Tierney's characterization, saying the Star Tribune's efforts to control costs will put it "in much better shape" than the Inquirer to deliver a first-class product.
"The best thing isn't being the first out of bankruptcy," Tierney said. "It's being out of bankruptcy the right way."
