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Creative Loafing bankruptcy: back in court today for ownership determination

March 17, 2009 at 11:40 am by Wayne Garcia

Creative Loafing CFO Angela LaFon spent the morning testifying in our bankruptcy case today, describing how she assembled various budgets and financial forecasts that are at the heart of the company’s disputed value. Federal Bankruptcy Judge Caryl Delano’s decision on who ends up with control of the alt-weekly chain could come late today at the end of testimony.

LaFon was asked about a summary of cost savings she prepared for the hearing, one that shows cuts made both before and after the bankruptcy filing on Sept. 29, 2008, and asked by an attorney for Atalaya Capital Management if it was proper to include the pre-bankruptcy costs cuts that were already in place as evidence of the company’s efforts to mitigate losses post-bankruptcy.

“This is a fair depiction,” she testified, “and absolutely, we have mitigated that $8 million in revenue declines.”

The case turns on two differing valuations of the company and interpretations of when it lost value in terms of sales revenues. The Atlanta-based Atalaya — which wants to take control of Creative Loafing and is owed $31 million from its financing of CL’s 2007 purchases of the Chicago Reader and the Washington City Paper — contends a severe drop in revenues and value took place after the bankruptcy filing and is evidence of improper or ineffective management. Creative Loafing, however, has produced numbers that show the revenue slide began as far back as July 2008 and was evident (and real) long before the September bankruptcy. CL is contending the bulk of the loss in the company’s value came before bankruptcy and that losses have been stemmed by management since the filing through various cost cuts (layoffs, etc.)

Much of the morning’s questions to LaFon dealt with various budgets, revenue forecasts and re-forecasts she prepared, which have been used differently by each side to buttress its argument.

Creative Loafing’s financial valuation expert Michael Mard (at right) is set to take the stand after lunch to testify how he arrived at his value for the company, which is expected to show an increase since the bankruptcy filing. (Atalaya’s expert last week testified that the value of the chain dropped by $7 million from Sept. 30, 2008, to the end of that year.)