The Star Tribune's hiring of private equity powerhouse Blackstone Group could result in a fundamental restructuring of the paper's debt, a process that may include anything from new loan terms to additional equity investors in the paper, analysts said.

Such a restructuring, coming only 15 months after Avista Capital Partners took possession of the Star Tribune, reflects just how rapidly the newspaper business -- and the credit markets -- have deteriorated in the past year. Across the country, in big cities and small, newspapers are struggling with declining readership and steep declines in advertising, especially lucrative real estate and automobile classifieds.

McClatchy Inc., the former owner of the Star Tribune, has seen its stock price plunge by 76 percent since it agreed to sell the paper to Avista in December 2006. The Journal Register Company, a publicly traded publisher that owns the New Haven Register, has hired an investment banking firm to help restructure the debt it incurred when buying a string of small dailies in Michigan. And last year MediaNews Group, owner of the St. Paul Pioneer Press, agreed to pay slightly higher interest rates in return for an amendment to its long-term debt.

Star Tribune publisher Christopher Harte said Sunday that the Star Tribune was current in its debt obligations. He dismissed as untrue a New York Post story that said the newspaper was "on the brink of bankruptcy." The Star Tribune's annual revenue fell $75 million between 2005 and 2007.

But the Star Tribune's decision to hire the Blackstone Group indicates the newspaper is trying to deal with the financial ramifications of this decline head-on, before it becomes a full-blown crisis, said analysts. "They see the iceberg ahead and they hired Blackstone to try to manipulate the rudder and change course before they hit it," said Tom Corbett, an equity analyst who covers the media industry for Morningstar.

Separately, the Star Tribune already has begun negotiations with its unions to reduce operating costs -- something lenders likely would expect if they were to adjust their loan terms.

Considered a heavyweight in the world of large-scale corporate turnarounds, New York-based Blackstone has advised Delta Air Lines, Enron, Global Crossing and other embattled corporations through their Chapter 11 bankruptcy reorganizations. "To bring in a heavy hitter like Blackstone, you know the problems at the Star Tribune must be serious," said Ed Atorino, managing director of the New York investment banking firm Benchmark Capital. "They're in there to do more than just talk to the banks. They're in there for a longer-term outcome."

Avista borrowed more than $400 million from a syndicate of banks when it bought the Star Tribune from McClatchy for $530 million.

A Blackstone spokesman declined to comment, as did Star Tribune spokesman Ben Taylor.

Chris Serres • 612-673-4308