NEW YORK - A U.S. bankruptcy court judge here cleared the way Wednesday for the Star Tribune's reorganization plan to be put to a vote among its creditors next week.
If approved, as expected, the newspaper company is slated to emerge from bankruptcy as early as Sept. 17 as a new entity with new owners and only $100 million in debt. That's about eight months after the paper filed for Chapter 11 protection when it could no longer service its debt load of approximately $500 million.
The Star Tribune company also is expected to announce a new publisher and board of directors before it emerges from bankruptcy.
According to the proposed reorganization plan, a small group of perhaps 10 debt investors -- primarily financial professionals who aim to profit from distressed assets -- will take over 95.5 percent of the company and select the new management and director team. These are the so-called senior note holders owed about $400 million by the Star Tribune. That debt will be pared to $100 million in the new company. The executive search is underway.
The debt is still trading in the financial markets, so it will not be known exactly how many investors there are -- or their identities -- until their votes are tallied Sept. 3.
But Wayzata Investment Partners, a Twin Cities investment group that was spun out from Cargill, is believed to be the largest investor.
Angelo Gordon & Co., a New York investment firm that has a particular interest in distressed media companies, is believed to be the second-largest investor. The firm also owns debt or equity stakes in the Tribune Co., Philadelphia Newspapers and American Media Inc., publisher of the National Enquirer.
The Star Tribune's junior creditors, owed about $150 million in unsecured debt, will replace their IOUs with a 4.5 percent equity stake in the new Star Tribune. They will also receive warrants, which will only become valuable if the new company does well.
Current equity holders, including publisher Chris Harte and New York private equity firm Avista Capital Partners, will be wiped out. Avista bought the paper for $530 million in 2007, paying only $100 million in cash and borrowing the rest. Harte has said he intends to step down before the paper emerges from bankruptcy.
Separately, the International Association of Machinists and Aerospace Workers, which represents 16 workers who maintain equipment at the newspaper's printing plant, ratified a new contract. Earlier this month, the Star Tribune had asked the bankruptcy judge to abrogate the existing contract, though the sides continued to negotiate. The machinists are the last of 10 unions to renegotiate contracts.
