By DAVID PHELPS, Star Tribune
Date: January 16, 2009
The Star Tribune, saddled with high debt and a sharp decline in print advertising, filed a Chapter 11 bankruptcy petition Thursday night.
Minnesota's largest newspaper will try to use bankruptcy to restructure its debt and lower its labor costs.
Chris Harte, the paper's publisher, said the filing would have no impact on home delivery, advertising, newsgathering or any other aspects of the paper's operations.
"We intend to use the Chapter 11 process to make this great Twin Cities institution stronger, leaner and more efficient so that it is well positioned to benefit when economic conditions begin to improve," Harte said in a statement.
The filing, which was made with the U.S. Bankruptcy Court in the southern district of New York, had been expected for months. It follows several missed payments to the paper's lenders, and it comes less than two years after a private equity group, New York-based Avista Capital Partners, bought the paper for $530 million.
In its filing, the newspaper listed assets of $493.2 million and liabilities of $661.1 million.
Like most newspapers, the Star Tribune has experienced a sharp decline in print advertising. Its earnings before interest, taxes and debt payments were about $26 million in 2008, down from about $59 million in 2007 and $115 million in 2004.
The Star Tribune, with Sunday circulation of 552,000, is the 10th-largest Sunday newspaper in the U.S. Its daily circulation of 334,000 makes it the 15th-largest daily based on circulation. The paper's website, StarTribune.com, averaged 76 million page views per month during the past six months, placing it among the top 10 newspaper websites in the nation.
It is the second major newspaper publisher to file for bankruptcy protection. The Tribune Co., publisher of the Chicago Tribune, Los Angeles Time and Baltimore Sun among other publications and television stations, filed for bankruptcy in early December, burdened by $13 billion in debt and the same deteriorating advertising environment plaguing the Star Tribune.
The Star Tribune may not be the last to go that route, said Alan Mutter, a Silicon Valley-based analyst and former newspaper executive.
"We're in a period of sustained pain for the newspaper business," Mutter said. "The employment ad business has been melting away since 2000. Automotive has been falling apart for the last couple of years. And I don't even have to explain about real estate."
Hearst Corp., owner of the Seattle Post-Intelligencer, last week said it would close the 146-year-old paper if no buyer could be found in the coming months. Shares of the McClatchy Co., which sold the Star Tribune to Avista, have fallen 98 percent since the sale was announced, and the company has been trying to raise money by selling the land near the Miami Herald.
Total annual revenue at the Star Tribune peaked in 2000 at $400 million; by 2007 it was less than $300 million.
Over the past two years, Star Tribune management made several efforts to cut costs, mainly by reducing the workforce and renegotiating new cost-cutting contracts with its unions, which represent nearly two-thirds of the company's 1,405 full-time employee positions. Since 2007, the company said it had achieved cost reductions of $50 million through reduced news pages, attrition, layoffs, voluntary buyouts and other expense reductions. According to the company's filing, the workforce reduction amounts to 610 full-time employees.
In July, the Newspaper Guild, the union representing newsroom workers, agreed to a three-year contract that saved an estimated $2.5 million a year. But other unions refused to agree to new contracts.
In early December, however, Harte asked the unions for another $20 million in cost reductions and said he intended to impose $10 million in additional savings elsewhere in the company. Those negotiations resulted in no new agreements, however.
Graydon Royce, co-chair of the Star Tribune unit of the Newspaper Guild, said the union remained "committed to the future and the survival of the paper."
"It's unfortunate that a New York-based private equity company has put the Twin Cities largest source of news and information at risk," said Royce, a 29-year veteran and one of the newspaper's fine-arts writers.
Court documents indicate that two Avista investment funds own 96 percent of the equity in the Star Tribune, with Harte, through a family trust, owning the balance.
But that ownership structure is likely to change by the time the company emerges from bankruptcy. In a restructuring, a company's lenders often convert some or all of their debt to equity in the company. In that process, the existing owners often see their equity reduced or eliminated.
Bankruptcy protection is a calculated risk, experts say. If all the interested parties can find common ground, the company can survive. But sacrifices, from pay cuts to revised loan terms, are likely required.
"They need a new capital structure. They need a plan of how the company is going to pay off debts and obtain financing," said Gregory Duhl, a law professor who teaches bankruptcy at William Mitchell College of Law.
