NY Post: Star Tribune "On the brink of bankruptcy"

The New York Post, always a "consider the source" font of news, has a solid-sounding story in which it declares that Avista Capital Partners, the private equity crowd that bought the Star Tribune for roughly forty cents on the dollar from McClatchy barely a year ago "stands to lose its entire investment" as the Strib teeters "on the brink of bankruptcy."

Says the Post:

"One of the nation's top dailies, "The Strib," as it is known to readers in the Twin Cities, recently hired the Wall Street powerhouse Blackstone Group to restructure its balance sheet after failing to meet its debt obligations, according to people familiar with the company.

The broadsheet is unlikely to shutter its doors, but its creditors, including the banking giant Credit Suisse Group, figure to eventually end up controlling the paper. Down the road, the creditor group could then sell it after dramatically cutting costs."

That last line, "after dramatically cutting costs," is ominous news for anyone employed by Avista at the Strib and the Twin Cities community in general, which arguably needs a fully staffed, fully functioning  newsroom somewhere in the cities now more than ever.

A couple hours ago (Sunday night), the Strib put up a story by Matt McKinney with a response from publisher Chris Harte.

In what has to be regarded as a classic non-denial denial, Harte said, among other slippery things:

"We recently hired the Blackstone Group to help us evaluate alternatives to our current capital structure, but that hardly merits a conclusion that we are near bankruptcy. In fact, Blackstone has substantial expertise in balance sheet restructurings through means other than statutory proceedings like bankruptcy."

A less generous fellow than me MIGHT take that to mean, "Yes, a new über-echelon of suits are coming in. We have little choice but to submit to whatever chainsawing they deem necessary to make good on our loans to Credit Suisse. In the best-case scenario, we'll only lose our $100 million and consent to some ludicrous fire sale to whoever wants to pick through the rubble."

Whether it is coincidence that Avista was to begin contract negotiation with the paper's reporters this week, I can't say. But conversations I had with Guild representatives last week found them in a glum, if determined, mood. Rumors then were that Avista was looking for a minimum of $10 million in new cost reductions—slashing staff and reducing content being its only means of producing the cash flow necessary for servicing the $400 million-plus in debt it took on when it took over from McClatchy.

The rumored range of cuts actually went from a low of $10 million to a high of $20 million. Either number is draconian since not so long ago, the paper's annual editorial operating budget was in the $10–$12 million range. (When I joked that $10 million represents roughly what Avista squandered defending disgraced publisher Par Ridder, one Stribber replied, "Yeah, and we intend to remind [Avista] of that several times a day."

If the Post is anywhere close to accurate, another fire sale with new owners gutting the paper would seem to raise the specter of Media News's Dean Singleton bottom-feeding for the Strib much sooner than even I imagined—and making his nut by combining the decimated Strib with what little is left of the Pioneer Press.

Comments

[new media guy]

Wonder what the numbers say about going online only and leaving the entire metro area's print version paper to the PiPress?

In particular, would that allow keeping the newsroom staff in some form of fully staffed?

Get the monkey of presses, trucks, circulation staff and the huge buildings housing them -- and newsprint off the back of the paper -- and you may have the backbone of a new century news operation.

Seems that's an option that any responsible overview would have to consider. Are $50-a-month subscriptions in the future?

LAMBERT: Once someone figures out a way to lay in as much display advertising around on-line content as broadsheet, this "full staffed" thing without trucks might happen. But until then the Avista/Credit Suisse/Singleton approach is to reduce staff AND content to achieve survivable profit.

[Jed Leyland]

Time for the owners to fall back to the classic Nioxon early Watergate defense position: "Mistakes were made by others."

If thgis were a Frank Capra movie, some local party would step up and buy it when it gets down to a press, a dozen delivery trucks, and Sid Hartman. Then start rebuilding it.

LAMBERT: The "local consortium" dream, where a collection of local benign despots take over the paper(s) for the greater community good seems pretty far-fetched to me. None of the usual suspects is in business to lose money hand over fist. And only Singleton has a broad national network to supply fat amounts of Media News "syndicated" copy.

[bertram jr]

So, it sounds as if Wall Street is giving Avista a rather "withering glance"?

Just for yuks, what are the odds that Singleton would retain, say, CJ or that other "column"?

LAMBERT: Both deliver reliable readership ... yourself for example.

[John K]

http://blogs.citypages.com/blotter/2008/05/strib_publisher.php

Strib Publisher Chris Harte responds to NY Post bankruptcy allegation

Star Tribune Publisher denies bankruptcy allegations, acknowledges hiring Blackstone Group.

LAMBERT: Yeah ... ?

[A Son of Mississippi]

How ironic that this story should have surfaced on the same day (or so) that the Strib carried obits of Austin Wehrwein and Sam Newlund, two first-rate journalists from the glory days of the Star and the Tribune. A moment of silence is in order to honor the memory of all four.

[Rich]

I'm no accountant but I would sell the downtown offices and the land around it to the LA Viking's head cheerleader and move to 2419 Lake of the Isles Parkway. There is enough room there to house the editorial, circulation and news staff left after the creditors gut the company --and they could relieve the stress with team building golf tournaments in the basement.

LAMBERT: That quick and easy sale of the Strib's real estate to Zygi -- for pretty much what Avista put into the deal -- is just one example of how everything has fallen apart here for the private equity sharks.

[Jim Leinfelder]

The Watergate era quote that seems most apt in contemplating Avista's misadventure here is from Deep "Mark Felt" Throat (Hal Holbrook) in "All The President's Men": "...The truth is, these are not very bright guys, and things got out of hand."

Come to think of it, it applies just as well to the nitwits peddling this Smiley Face Serial Killers hocum: the "journalists," the illiterate seamus who wrote into your blog, and the two retired coppers from NYPD, the lot of 'em, none too bright and they let this ludicrous theory that apparently brought some meaning into their lives for a few years get well out of hand.

Nothing but a bunch of reckless fear-mongering.

LAMBERT: It's been a tough year for the smart kids in the room.

[A Son of Mississippi]

I hate to shame him or shame us, but the most literate Mr. Leinfelder should know that it is 'shamus'.

LAMBERT: YOU correct him.

[Sam]

Brian, how does your comment that Avista is "[losing] money hand over fist" square with the actual numbers? Aren't most newspapers, the Strib included, still quite profitable by all but the inflated standards of the for-profit newspaper business? Or have things fallen so far so fast that even that has changed in the last year or so?

Or did I just misread it, and you meant that Avista no longer is likely to be able to recoup the hundreds of millions they paid for the paper in the short amount of time they were likely hoping for, and are therefore "stuck" either running a newspaper long-term or getting out at a loss?

LAMBERT: No one would ever want me running a multi-million dollar business. But as I see it, even though Avista can still make a claim to turning profit on the day-to-day operation of the paper, like a house in a freshly detected earthquake zone, what equity they perceived in this property is/has evaporated, and the arrival of the Blackstone dudes is proof that someone higher up the food chain -- Avista's creditors -- no longer see any possibility of them "earning" their way out of the negativity in their total value. To me, and in view of the fact that this evaporation has taken place in barely a year, well, that's "hand over fist".

[Bleuler]

It is unfortunate. But the current business plan is not working.

For all you union aficionados note that the Guild is really powerless when there is no hope for a profit. Part of this could have avoided by the Guild agreeing with McClatchey and vigorously cutting the budget when they still had a going concern and were capable of handling their debt.

The Guild showed its stuff, kept a few employees from being let go but, in the process, ended any hope for McClatchey to make the business profitable. They sold as their only alternative. What Vista saw was a higly leveraged investment that looked profitable. In this they were as unprepared for the changes as was the Guild.

One good thing. The Strib editorial page will conflate business with evil and urge increasing the Minnesotan tax burden. Bjy doing so they will provide a lesson even the children will understand.

LAMBERT: The Strib's current editorial page will seek every means possible to apply lipstick to the Blackstone pig. And as for the Guild, the sad fact is that you're probably right. The Guild has no real leverage. Hanging on to something ... a little bit longer ... is the best they can hope for. But the gross miscalculation here was Avista's belief that it could handle -- even in the three-to-five year term -- $400 million in debt. You Bleuler, I gather, are a private equity kind of guy, happy to play the leverage card. But I'm thinking at some point widespread "miscalculation" by smart people with all the analytics they could muster starts to look more "reckless" than "entrepreneurial".

[Jim Leinfelder]

SOM, you are, of course, correct, and I, I stand corrected, but not chagrined, as it has come from so worthy and courtly an authority. I must admit to never having encounterd "shamus" in written form, only spoken. I thank you for advancing my diction, sir.

[A Son of Mississippi]

JL: Courtly? Kind of you, sir, but portly is more accurate.

[bertram jr]

Now perhaps you will turn your attention to "conjunction junction".

Now, I have to go finish my waffle.

[Mr. Monster]

Why is anyone surprised by this news? The Star Tribune hasn't been profitable since the Cowles family sold it. They knew when it was time to sell. Prior to McClatchy buying the Strib, it was not run by bean counters. The state of the Star Tribune is no different than what we are seeing throughout the business world. Look at the auto industry, banking, airlines, .... If Avista makes the cuts at the Strib that many expect, it will be hard to discern it from the Sun Newspapers edition that reaches many of our houses each week.

LAMBERT: "Profitable" would seem to be a word heavily susceptible to spin. Is a company truly "profitable" when as it is returning 8-10% positive revenue on "normal business" transactions i.e. payroll, infrastructure, etc. vs. income the new parent company is so wildly in hock for the cost of purchase there is no hope of black bottom line?

Given a debt-free environment -- which some well-heeled type might be able to pull off if the value of the Strib falls from $530 million into the high $100 millions -- the enterprise might be sustainable much like it is. But clearly this "invitation" to bring in Blackstone, bodes ill for retaining the talent and resources the Strib needs to genuinely "serve" the Twin Cities.

[bertram jr]

You refer of course to Claude N'Rick?

I'd like to see them try that in the Sun Sailor!

LAMBERT: Does your employer know how much time you spend with Claude and Rick?

[TIRED OF BJ]

What's with this Bertram Jr sap...shouldn't mighty BJ be over at strib.com blogging words of love with Kitty Kersten?

LAMBERT: Actually, I don't know if bertram and kitty have ever been seen in the same room at the same time. Although, even she spends less time than he fretting and Claude and Rick.

[hoppy]

claude and rick -- the beginning of a beautiful friendship?

LAMBERT: Maybe. But Claude, Rick and Bertram?