Star Tribune emerges from bankruptcy protection with its main lenders becoming the new owners and its debt slashed by 80%
September 29, 2009
– The Star Tribune emerged from bankruptcy protection Monday with its main lenders becoming the new owners and its debt slashed by 80 percent.
Out from Chapter 11, the Star Tribune can now make decisions without a judge's supervision, as Minnesota's largest newspaper and the nation's 14th largest on weekdays tries to ride out an advertising drought and boost revenue in print and online.
The move was largely expected after a federal bankruptcy judge in New York approved the Star Tribune's reorganization plan Sept. 17. The newspaper had filed for bankruptcy protection eight months earlier, saddled by debt from Avista Capital Partners' 2007 purchase of the newspaper from the McClatchy Co.
New board Chairman Michael Sweeney said Monday was "the first day of a new beginning" as the 142-year-old newspaper got "a new lease on our future."
In a note to readers, Sweeney acknowledged challenges ahead in "finding new ways to finance the quality journalism that you have come to expect of us" as the industry makes a transition to the digital world.
Among other things, the Star Tribune is exploring charging readers for access to some or all stories on the Internet. Next month, it plans to launch a Minnesota Vikings premium package for $19.95 a year with photos, chat sessions and other football coverage not available on the free part of the Web site.
"Ultimately, you get to decide what information you want, how you want to receive it and at what price," he wrote. "The debate about the future of newspapers is really a debate about what you, as readers, are willing to support."
In choosing Sweeney as the new chairman in August, the new owners found someone with extensive experience in retailing, but not newspapers.
Sweeney is the managing partner of the private equity firm Goldner Hawn Johnson & Morrison Inc. in Minneapolis and previously served as president of Starbucks Coffee Company (UK) in London. He spent several years developing and selling franchise companies for Blockbuster Video and Papa John's Pizza.
When his appointment to the Star Tribune board was announced, Sweeney told The Associated Press that he made a long-term commitment to be involved on the board. Sweeney did not immediately respond to interview requests Monday.
Senior lenders will now hold about 95 percent of stock in Star Tribune Holding Co., which is becoming Star Tribune Media Company LLC. under the new ownership. Those lenders, according to court filings, include Angelo, Gordon & Co.; Wayzata Investment Partners; Credit Suisse Group; CIT Group Inc.; and General Electric Co.'s GE Capital.
A steering committee of main lenders already has named four new board members, including Sweeney, 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.
Current Publisher Chris Harte plans to step down, but a new publisher has yet to be announced.
The company's debt was slashed to $100 million, from $480 million when it filed for Chapter 11 on Jan. 15. 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.
Avista, the majority stockholder, gets nothing. It already had written down to zero the value of the $105 million it invested as part of the $530 million takeover of the Star Tribune. The remainder of the acquisition price was paid using borrowed funds.
At the time, it seemed like a bargain compared with the $1.2 billion that McClatchy had paid for the company only nine years earlier. But like many private equity deals of the past few years, Avista's acquisition left the newspaper with debt and interest payments that became increasingly tough to pay off as the recession deepened.
The Star Tribune joins New Haven (Conn.) Register owner Journal Register Co. and American Community Newspapers, operator of three small daily newspapers in Minnesota and Texas, in emerging from bankruptcy protection. Several others, including companies that own the Los Angeles Times, the Chicago Tribune and The Orange County Register in California, remain under supervision of U.S. Bankruptcy Court.
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