Fresh Loaf

Ben Eason

(Updates below, with additional reporting by Thomas Wheatley.)

… Atalaya Capital Management.

The auction, which began this morning, determined who will control Creative Loafing Inc.’s six newspapers, which compose the nation’s second-largest altweekly chain. It also marks the end of CLI’s yearlong bankruptcy.

Outgoing CEO Ben Eason lost control of the company his parents founded in 1972 to the New York hedge fund from whom he borrowed $30 million to buy the Chicago Reader and Washington City Paper.

Atalaya won the auction with a $5 million cash bid. Eason’s highest offer was a $2.3 million bid, nearly $1.5 million of which was “in-kind contributions.” Had Eason won, he also would have had to repay Atalaya at least $12 million.

Reporters, CLI managers, and Eason family members filled the courtroom to capacity.

Bankruptcy Judge Caryl E. Delano opened the equity auction with CLI’s bid. Tyler Brown, representing Atalaya, asked the judge if bids needed to be entered in increments of $50,000, to which Delano replied they did. People who might have been prepared for a game of one-upmanship were then disappointed, as Brown submitted Atalaya’s bid of $5 million in cash.

CLI’s lawyers asked for a brief recess.

When the recess ended and Delano returned to the bench, CLI’s lawyers asked her to close the auction. They wanted to argue that Atalaya’s bid might have been the “highest,” but it wasn’t necessarily the “best.” If Atalaya gained control of the company, they said, there was no guarantee that the hedge fund wouldn’t split the company into pieces and sell off the papers.

“What is in the best interest of the company going forward?” asked Mariaelena Gayo-Guitian. “For the creditors, the employees, for public policy?”

Bart Houston, another CLI lawyer, said it was important that the judge consider the employees and the role newspapers play in communities.

But Delano, who said during the trial that she’s read Creative Loafing for years, repeatedly stated that it would be hard to sway her with such a position. She tried to find case law that touched on CLI’s “highest and best” argument, she said, but came up empty-handed.

“I’m at a loss to what I can possibly hear to change my mind that a $5 million cash offer is the highest and best offer,” the judge said.

When the judge ruled Atalaya’s bid was the “highest and best,” Eason sat silently, blinked several times, and then rocked back and forth in his chair. The drama ended at that moment, but nearly an hour of administrative minutiae followed.

Atalaya told the court that it didn’t intend to close any of the papers; the plan is to reinvest in them. Atalaya has indicated that Creative Loafing’s new board will be manned by some impressive names in national journalism, including ex-L.A. Times editor Jim O’Shea. O’Shea was fired from the Times after he resisted the publisher’s demands to cut the editorial staff. By bringing him on, Atalaya could be adding substance to its promise to reinvest in CLI’s six papers.

Other board members include:

Michele Laven, director of integrated media for Clear Channel and former president and COO of New Times (which later merged with Village Voice Media to form the nation’s largest altweekly chain). Laven had been publisher of New Times flagship Phoenix New Times before moving into the corporate position.

Richard Gilbert, former president of the Des Moines Register and former publisher and CEO of Pioneer Press newspapers in suburban Chicago.

Mike Bogdan, Atalaya partner and managing director.

Bogdan said after the hearing that there would be no layoffs — at least that there were no “planned layoffs” — and that he would meet with publishers Wednesday in Tampa. He said that CLI’s Atlanta staff, which was scheduled to move from its West Side offices as part of Eason’s unsuccessful bid, would stay at its current location.

“This is a great thing for the company and employees,” Bogdan said. “We can move on and start building the company up again. I look forward to meeting with [them].”

Afterward, Eason told reporters he planned on starting a new media company, most likely with a Web-based model.

Eason said he didn’t have any regrets about the business decisions that led to this point, blaming most of CLI’s hardships on Craigslist and a business model that, burdened with debt, was unprepared to accommodate the loss of revenue.

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Tags: Atalaya, Atalaya Capital Management, Ben Eason, CL bankruptcy.