The Star Tribune newspaper has stopped making payments to its senior creditors, the chairman of the company said Tuesday.
The decision to skip a $9 million quarterly payment on its $432 million debt allows the newspaper to conserve cash while attempting to restructure, said company Chairman Christopher Harte.
All options, including a bankruptcy filing, are on the table as the newspaper and its advisers negotiate with the paper’s lenders.
“We are looking at an incredibly wide range of options, but nothing’s imminent,” said Harte.
The newspaper still makes money, Harte added, and he doesn’t expect the missed payment to affect relationships with vendors or advertisers.
In addition, the company continues to invest in “midlevel” capital expenditures such as the newsroom’s current program of upgrading computers and its e-mail system.
News of the skipped payment comes as only the latest stumble in what has been a disastrous period for newspapers everywhere as they struggle to adapt to the Internet age.
The Newhouse family, one of America’s wealthiest, is threatening to close or sell the Star-Ledger in New Jersey unless workers agree to concessions. The New York Sun shut down earlier this week, and Creative Loafing, an alternative newspaper chain with weeklies in Chicago and Washington D.C., filed a Chapter 11 bankruptcy petition.
Not 'straight line’ to bankruptcy
Still, the Star Tribune’s decision to stop making payments does not make a bankruptcy filing inevitable, said Clint Cutler, a bankruptcy attorney with Fredrikson & Byron.
“It isn’t a straight line from taking this step to the paper being in bankruptcy,” Cutler said. “What typically would happen is you would make some attempt to negotiate with the lender so that it fits within the existing cash flow and the projected cash flow of the debtor.”
Lindquist & Venum bankruptcy attorney George Singer said the Star Tribune’s senior investors are unlikely to take over the paper or order that its assets be sold, though they could, since the newspaper is now essentially at the mercy of its lenders.
“Sometimes lenders say, 'What’s your plan here to get us paid?’ They may want the company to sell to a stronger organization, or get another financing option,” he said.
The Star Tribune’s owner, Avista Capital Partners, a New York private equity firm, paid $530 million for the Star Tribune in 2007.
Junior lenders not paid in June
The newspaper defaulted on its loan agreements earlier this year, when it was unable to provide an “unqualified” audit from its accountants. In June, it stopped making payments to junior lenders, a group of investors who financed about $96 million of Avista’s acquisition.
The senior lenders include Credit Suisse, according to UCC filings with the secretary of state in Delaware, where the newspaper is incorporated.
The newspaper employs 1,405, including 307 in the newsroom, down from 407 at the end of 2006.
The newspaper’s daily circulation as of March 31, the most recent number available, stands at 322,362, according to figures from the Audit Bureau of Circulations. Sunday circulation is at 534,750. That’s about a 7 percent drop from the previous reporting period six months earlier.StarTribune.com averages almost 6 million monthly unique visitors and has averaged about 73 million page views a month during the past six months, an increase of 50.5 percent over a year ago, according to site tracking data.