Like a shopper with a maxed-out credit card, American Community Newspapers is coming to terms with the debt that propelled the publisher of community newspapers -- including more than 40 in Minnesota -- into bankruptcy.
The Texas-based company has received bankruptcy court approval to sell its assets at an auction where the company's lenders will act as the lead bidder.
The company will see if it can attract a better offer than the lenders, who are owed about $107 million and have agreed to buy the company for $32 million of the debt, according to bankruptcy court documents.
In Minnesota, American Community publishes the weekly Sun Newspapers as well as the daily Stillwater Gazette. It publishes a total of about 85 community newspapers and niche publications in suburban markets in Dallas, Washington, D.C., Columbus, Ohio, and Minnesota.
Local publications referred calls Friday to its headquarters. Officials at the company's public relations firm declined to comment. In its Chapter 11 bankruptcy filings, the company has listed debts of as much as $500 million and assets of less than $100 million. All of its newspapers are believed to still be operating, and in the court documents the company has said it believes the asset sale provides it with the best chance to continue as a going operation.
The papers had received court approval to borrow as much as $5 million from the lenders, including Bank of Montreal and General Electric Capital Corp., to help finance its reorganization.
In previous statements CEO Gene Carr blamed a sharp downturn in advertising for the bankruptcy. The company reported a 16 percent drop in ad revenue for its first quarter ended June 29, 2008, the last time it filed financial results with the Securities and Exchange Commission. The SEC filings noted that most of the ad revenue decline was at its papers in the Twin Cities area and said it was primarily because of the slow housing market.
But the company also ran into trouble for taking on a huge debt load to finance acquisitions. In 2005 American Community bought eight weekly papers and one daily paper, all outside Minnesota. In 2006 Carr even indicated he might be interested in acquiring the St. Paul Pioneer Press when that paper was put up for sale after its parent company, Knight-Ridder, was acquired by the McClatchy Co.
Last summer, American Community disclosed that it had violated covenants in its credit agreement as its debt load of $136 million overwhelmed cash flow. The stock tumbled and was delisted from the American Stock Exchange last fall. It is now quoted on the Pink Sheets and last traded in April for a penny a share.
American Community is one of seven newspaper publishers -- including the Star Tribune -- that have filed for bankruptcy in the last year. Ellen Mrja, a professor of mass communications at Minnesota State University, Mankato, said the combination of high debt and lower revenue appears to have had the same lethal effect on large and small newspapers.
"It wasn't that many years ago that almost all newspapers were doing well," Mrja said. "Then we went into this cycle of consolidation, and publishers took on an incredible amount of debt."
The auction is scheduled for May 28.
Susan Feyder • 612-673-1723
