A federal judge cleared the Star Tribune of Minneapolis on Thursday to emerge from bankruptcy protection by the end of the month under a reorganization that puts Minnesota's largest newspaper in the hands of its main lenders.
Approval came despite efforts by lower-level creditors to require the newspaper to reveal the identity of its new publisher beforehand. A committee representing unsecured creditors, who will be all but wiped out in the reorganization, argued there was no way to assess the bankruptcy plan without knowing who will lead the newspaper.
The company said a steering committee put together by its new owners has a leading candidate in mind, but it declined to name that person, who still works for another company and has not yet signed a contract.
The Star Tribune will officially emerge from Chapter 11 by Sept. 28, ahead of its next financial reporting period.
U.S. Bankruptcy Judge Robert D. Drain's approval allows the newspaper to reduce its debt by almost $400 million - to about $100 million - as those claims are converted into ownership stakes for the creditor group led by Angelo, Gordon & Co.
First-tier lenders are getting new common stock plus secured notes worth 32 cents on the dollar while most unsecured lenders are getting a penny.
Besides Angelo, the company's new owners include Wayzata Investment Partners, Credit Suisse Group, CIT Group Inc. and General Electric Co.'s GE Capital. They'll get to choose new management, and a steering committee already has named four new board members, including former Wall Street Journal publisher L. Gordon Crovitz and Michael E. Reed, head of the Fairport, N.Y.-based chain of newspapers GateHouse Media Inc.
Star Tribune Publisher Chris Harte will step down and majority stockholder Avista Capital Partners will get nothing.
The Star Tribune, the country's 14th-largest daily newspaper, with a weekday circulation of roughly 321,000, filed for bankruptcy protection in January as revenue tumbled faster than the company could cut costs.
Avista bought the newspaper from McClatchy Co. in 2007. Like many private equity deals of the past few years, the acquisition left the company with debt and interest payments that became increasingly tough to pay off as the recession deepened. Avista put up only about $105 million of the $530 million acquisition price, already far below the $1.2 billion McClatchy paid for the newspaper in 1998.
In addition to wiping out debt, the company used bankruptcy proceedings to get $20 million in annual concessions from its unions.
Now it faces the same urgent questions the rest of the newspaper industry is grappling with: Will revenue return as the country pulls out of a recession, or have too many readers and advertisers opted for cheaper options on the Internet? And as readers drop the printed product, will they pay for the online version?
In the meantime, the Star Tribune is experimenting with a TV-style news program on its Web site and delaying some longer features online for a few days from when they run in the printed edition, a move aimed at hanging on to its print audience.
(Copyright 2009 by The Associated Press. All Rights Reserved.)