Creative Loafing CEO Ben Eason explains how he hopes to compete at upcoming bankruptcy equity auction
July 22, 2009 at 8:12 am by Wayne Garcia
Michael Miner, the media writer at our sister Chicago Reader, has a good piece with Creative Loafing CEO Ben Eason in which the once-and-possible-future owner of the online media and alternative weekly newspaper chain talks about how he plans to win a bankruptcy court equity auction to maintain control of the company.
The difficulty is that the company bidding against him, Atalaya Capital Management, could have deeper pockets. Atalaya loaned Creative Loafing $30 million in 2007 to finance the purchase of the Reader and Washington City Paper and is now owed in the area of $31 million.
Miner’s story picks it up from there:
Atalaya is in the catbird seat. The first $2 or $3 million raised in the auction will pay back small creditors and provide the company with working capital. But after that the money all goes to Atalaya until it gets back the money it’s owed, now about $31 millon. In effect, it can bid that high simply by taking money out of one pocket that it will put back in another. Under the circumstances, how can Eason compete?
I asked him. “You hit on a dilemma we think we can work through,” he said. The key date, according to Eason, is not August 25, when the auction will be held, but July 27, when Judge Caryl Delano sets the rules of the auction.
“What the issue really is,” Eason said, “is who’s going to keep their money in. Who’ll be involved in this thing for the long haul. It appears the way Atalaya is coming at this they’ll put their money in and immediately take it out. That’s part of their financial engineering, it’s a typical Wall Street hedge fund being slick with the money. But we’re looking to make sure that whoever bids at the equity auction truly wants to hold the company.”
Eason thinks control of the company will, in part, be decided through the judge’s interpretation of two words he wants to make sure are in the bidding procedures: “and best.”
Eason believes the judge should award the papers to the “highest and best” bid, which he’s ready to argue would be Creative Loafing’s. For Atalaya, he told me, “it’s just a deal. For me it’s my passion, my life, and everything. And on the business side, I have to say I think the company has really responded to making the digital transition. I think we’re a third of the way there, a half the way there, and I like the model we’ve created of sort of old media morphing over to new media and using in our sales models the strengths of both mediums. The real key here is not a financial play — it’s how everybody uses their publishing smarts and knowledge of online to fuse those models together. The game is not who’s got the most money but who’s got the most smarts to make the transition.”
And if Federal Bankruptcy Judge Caryl E. Delano doesn’t allow “and best” to be part of the bidding requirements or doesn’t see things Eason’s way about what is best for the future of Creative Loafing, what happens then, Ben?
Read the rest of Miner’s article to find that out.
