Final showdown in Creative Loafing bankruptcy ownership will be Aug. 25
July 29, 2009 at 2:40 pm by Wayne GarciaNobody emerged with a clear advantage from today’s federal bankruptcy court hearing in Tampa for the post-bankruptcy ownership of Creative Loafing. Judge Caryl E. Delano kept intact a negotiated set of auction rules while saying that she’s waiting until the Aug. 25 equity auction bidding to decide how to define and decide what the “highest and best” offer will be.
While today’s hearing about the rules and procedures for the bidding was given a pretty high-drama buildup in a 1B St. Petersburg Times story and in the Chicago Reader last week, it didn’t live up to its billing and was actually a complex, confusing, and undramatic court session.
Delano approved the negotiated set of bidding rules that was contested for two hours today, but she left some core issues unresolved and said, “I’ll make my ruling as to what the highest and best offer is” on Aug. 25.
If there was real news out of today’s hearing, it was that Creative Loafing CEO Ben Eason is considering stepping down temporarily to focus on formulating a new equity bid for the post-bankruptcy company.
“There is this big fight about [my] fiduciary obligations,” Eason said after the hearing. “It’s just a very tricky sort of thing.”
How tricky? So tricky that Eason, as the CEO of the debtor Creative Loafing, had one set of lawyers in court today who had negotiated and filed the bidding rules and sought Judge Delano’s approval. He also had another lawyer in court representing him and family members who would be part of the new equity bid, and that lawyer — for Eason (the bidder) — took issue with the bidding rules that Eason (the debtor) had OK’ed.
Eason said he has not made up his mind about stepping aside as CEO and did not have a timetable in mind for it.
But back to the equity auction for a minute.
To recap for those not living through the fun of this Chapter 11 for nearly the past year, it has come down to this: Two competing interests want very badly to own Creative Loafing post-bankruptcy. The first is Atalaya Capital Management, an Atlanta-based hedge fund that loaned $30 million to Creative Loafing in 2007 to finance the purchase of the Chicago Reader and the Washington City Paper and that, for fairly understandable reasons, isn’t real happy that it didn’t get repaid. On the other side is a coalition put together by Eason, his family and another CL investor, BIA Digital Partners, which lost $10 million in that same 2007 financing deal.
Here is a preview of the arguments both sides will make to Judge Delano at the Aug. 25 equity auction:
Atalaya will insist that the “highest return” for the company in the equity auction would be an all-cash bid, as it has already made in the amount of $2 million. It likely will question any in-kind considerations in the expected BIA-Eason Family bid, which could include free office rents valued at nearly $1 million. Atalaya will ask the judge to rule that cash is king in the bidding. “It’s what the creditors get … cash on the barrelhead,” he said. And the only creditors not envisioned being repaid in the current bids are Atalaya and BIA, so if bids rise and there is more money to repay those debts, that would be beneficial, Atalaya’s lawyer Tyler Brown argued.
Eason’s personal lawyer and a lawyer for BIA, however, said Delano must not allow Atalaya simply to bid up as much as it wants, under the theory that every dollar it puts in for equity it can take right back out to satisfy the unpaid portion of its owed $30 million. They argued it was “taking money out of one pocket and putting it another,” which would not be in the best interests of the newspaper chain going forward. They labeled it “credit bidding.”
“This is a hedge fund,” Eason said outside the courtroom. “The question is are they really going to operate the business? This is just a financial deal for them. We’re prepared to run it for the long term.”
Atalaya, during hearings earlier this year, also said it plans to operate the business as a news media company and has a management consultant lined up. It also said it would make an additional $1 million line of credit available to the new CL if it is the successful bidder, for operational needs. “We’ve committed some real money here,” Brown said in court.
July 31st, 2009 at 9:15 am
It’s not like Atalaya can’t find people to run these papers if they win the bidding. The notion that Ben Eason is the only one (or even the best one) to operate this group of papers is ridiculous. There are literally dozens of alt-weeklies around the country that outperform the CL papers.