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Star Tribune withholds some pay to lenders
The company declined to make regular quarterly payment to junior debt holders.
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Star Tribune Co. declined to make a quarterly interest payment Monday to the holders of $96 million in second-tier debt that Avista Capital Partners raised to finance its acquisition of the news company last spring.
But Chris Harte, chief executive of the Star Tribune, said in an interview that a lending consortium that holds senior debt of nearly $400 million was paid Monday.
The Star Tribune has sufficient cash to make the payment to the "second-lien" debt holders, Harte said, but chose not to as the company works to complete a debt-restructuring plan with its senior creditors and works internally on a package of expense reductions and revenue enhancements.
"If we can restructure this debt, we still have a very viable [business]," Harte said.
The newspaper in May hired investment advisers The Blackstone Group to help restructure its debt after the company's auditors warned that its revenues were dropping. By missing the Monday payment to junior debt holders, the company is in default on that debt.
The Star Tribune and the newspaper industry are in a several-year contraction as classified advertising has shifted to online advertisers; paid circulation has declined, and the ailing automobile and real estate sectors have cut ad spending.
Star Tribune revenue has fallen from about $400 million in 2000 to about $300 million in 2007, based on public filings by former owner McClatchy Newspapers and by Star Tribune officials.
"We have not been able to cut operating costs as rapidly as revenues have declined," said Harte, who declined to quantify the results. "And EBIDTA [earnings before interest, depreciation, taxes and amortization] is down dramatically."
Employment has declined from about 2,300 to 1,500 since 2000 through attrition, layoffs and buyouts.
George Singer, a veteran bankruptcy attorney with Lindquist & Venum who is not connected to the Star Tribune, said Avista's decision to withhold payment to the junior debt holders likely was made with the approval or encouragement of the senior lenders who would get paid first in a bankruptcy. The senior debt has traded among banks for as little as 56 cents on the dollar while the second-tier debt has traded for as little as a dime on the dollar.
Also, junior creditors often exchange their debt for equity through a financial restructuring.
"The banks say: 'Don't make any payments to subordinate debt holders.'" Singer said.
Harte, who declined to elaborate on lender negotiations, said ongoing discussions remain cordial.
In May, Avista, a private-equity company that invests for affluent individuals and institutions across several industries, said it wrote down the value of its $100 million investment in Star Tribune by 75 percent to reflect deteriorating conditions since the purchase in March 2007.
The write-down reflects a loss of value and is consistent with the falling stock prices of publicly held newspaper companies such as McClatchy and Media General, which have declined in value by up to 90 percent. McClatchy, one of the nation's biggest newspaper conglomerates, has fallen from nearly $71 per share to less than $7 over three years.
McClatchy paid about $1 billion for the Star Tribune in 1998. Avista paid $530 million in March 2007.
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