The Political Whore

Current Creative Loafing CEO and Chairman Ben Eason won a partial victory in federal bankruptcy court in Tampa today as Judge Caryl E. Delano refused to grant a motion by lender Atalaya to give it ownership of the company.

At a preliminary hearing this afternoon, Delano ruled that Creative Loafing’s reorganization plan should move forward and that it is too early to say that it can’t work. If it were nine months or more into the bankruptcy, Delano said from the bench, such a motion would be worth pursuing. “We’re three months into the case. I think the debtor should be provided a reasonable opportunity…. This case has been on a short string,” Delano told the parties in court. “The debtor has complied with those timetables” in producing a preliminary reorganization plan.

On a second part of Atalaya’s takeover motion, Delano set a date for a final evidentiary hearing, Jan. 21. At issue is whether the bankruptcy court’s automatic stay (which prohibits Atalaya from declaring Creative Loafing in default for not paying on more than $30 million it lent to the newspaper chain in 2007) is harming the value of Atalaya’s investment in the company. The lender and CL will present evidence of how much the chain is worth and whether that value is declining since the newspaper declared Chapter 11 bankruptcy. Atalaya insists that delaying the default is causing the value to plummet lower, wiping out its investment. If it prevails on this issue, it could declare a default and own the company.

Delano also approved a controversial hiring of Tampa-based Skyway Advisors to give Creative Loafing financial advice. Atalaya had objected to an original contract with the advisors that included lucrative investment banking services in addition to financial counsel. Creative Loafing withdrew those provisions and Atalaya dropped its objection.

The financial picture for those owed money by Creative Loafing isn’t pretty, according to Terry Boatner, the U.S. trustee who represents unsecured creditors in the case. “This debtor is really way under water,” Boatner told the court, as she objected to Skyway’s hiring. Boatner also cited anonymous complaints made to her office that alleged that Skyway was the “architect” of the strategic directions that led Creative Loafing to bankruptcy court in the first place. Boatner said that complaint was left on her voice mail without any identification from a telephone number in the Midwest. (Skyway did advise Creative Loafing on its purchase of the Chicago Reader and Washington City Paper in 2007 that was financed by Atalaya and another leader, BIA.)

Atalaya remains critical of the current Creative Loafing management and said the reorganization plan submitted earlier this week raises more questions than it gives answers. “We don’t know a lot of things,” said Tyler P. Brown, a Richmond, Va.-based attorney for Atalaya. The remaining questions: Who will be the new equity partners in a reorganized Creative Loafing, and how much will they be contributing. It is also uncertain how much of its investment it will recoup, with the current reorganization plan putting the figure at between $5 million and $15 million.

David S. Jennis, CL’s Tampa bankruptcy lawyer, told the court that those investment details will be coming soon. “We’re not able to do so at this time,” Jennis said. “There are ongoing negotiations.”

A Jan. 26 hearing is also set to review the proposed reorganization plan.

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