The Political Whore

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:

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And it will be on Aug. 25, during a hearing in downtown Tampa that will start at 10 a.m. Federal Bankruptcy Judge Caryl E. Delano today approved a disclosure statement for Creative Loafing’s reorganization plan after a week of intensive talks between the chain’s owners, in the form of company CEO Ben Eason, and its largest creditor, Atalaya Capital Management LP.

Atalaya is the investment fund that was owed $31 million from financing CL’s 2007 pay-down of debt and purchase of the Chicago Reader and Washington City Paper. As part of the negotiations, Atalaya has agreed to write-down its promissory note to $12 million, which would be repaid at 8 percent interest-only for five years and balloon due at that point.

According to the terms of the reorganization plan and promises made in court today, all CL creditors would be paid in full with two exceptions: Atalaya and BIA Digital Partners, which provided additional lending in the 2007 deals. BIA is now part of an Eason-led equity group that will bid for ownership against Atalaya.

Monday’s hearing found the normally adversarial Atalaya and CL relationship thawed to some degree.

“We are on board and supportive of moving forward under this process,” Atalaya’s lawyer, Tyler Brown, told the judge via telephone during the noon hearing. Read the rest of this entry »

Ben Eason, whose family started Creative Loafing in Atlanta in 1972, was vindicated in a federal bankruptcy court in Tampa today, as a judge ruled against a lender’s effort to take control of the nation’s second-largest chain of alt-weekly newspapers.

Judge Caryl E. Delano said despite contradictory (and flawed, in her estimation) reports about the chain’s value since going into Chapter 11 bankruptcy protection in September 2008, there was no evidence given that Eason’s management of the media company is harming its value, as lender Atalaya Capital Management had maintained in its effort to dislodge Eason and the current management.

To the contrary, Delano read from the bench, three days of hearings showed that Eason’s management had done a lot to preserve value, by making budget cuts and introducing an emphasis on web publishing models, including one in Tampa that has produced a sharp increase in web traffic while making the print edition a break-even proposition instead of a money-losing one.

“I find that Atalaya has not met its initial burden of proof and is not entitled to relief [from court stays against it foreclosing on the company's debt] at this time,” Delano said.

For Eason, who has been slagged by some former employees and in anonymous blog comments, the ruling was more than satisfying, even if the company still has a long way to go in winning confirmation and release from bankruptcy court.

“I’m psyched,” Eason said as he exited an elevator on the ground floor of the Sam Gibbons Federal Courthouse. “Just to have it over with. She came to a pretty solid decision at this point.”

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The battle for control of the six-alt-weekly newspaper chain Creative Loafing reaches a climax on Tuesday in a Tampa bankruptcy courtroom as Federal Judge Caryl E. Delano is set to rule on a motion by lender Atalaya Capital Management to take over the company.

Atalaya wants to foreclose on its $31 million in loans given to finance CL’s 2007 expansion and purchase of Washington City Paper and the Chicago Reader. That action was blocked when CL filed for bankruptcy court protection under Chapter 11 of the federal code in September 2008.

I’ll be there and will report as soon as possible from the anti-technology courthouse (no cell phones or laptops allowed in federal court).

DL the judge’s order setting the announcement for 2 p.m. on Tuesday, cl-ch-11-253. She’s allowing the out-of-town Atalaya attorneys to attend via telephone.

Both sides have filed their closing arguments in writing, concluding the hearing process for an attempt by lender Atalaya Capital Management to take control of the Creative Loafing newspaper chain from CEO Ben Eason. Now, federal bankruptcy District Judge Caryl Delano will rule, expected to come via telephone conference call in the next few days, possibly by Tuesday of next week.

There’s nothing new in either closing argument, just a recitation of each side’s opinion about whether the value of CL has dropped since filing for bankruptcy court protection on Sept. 29, 2008, and whether the current management is harming the company’s value and therefore diminishing the collateral used to secure $31 million in loans from Atalaya. That money was used to retire debt and purchase the Washington City Paper and Chicago Reader.

An excerpt from Atalaya’s closing argument (download it in .pdf):

Granting relief [by giving the company to Atalaya] will best protect the companies, their employees and other creditors. Declining to grant relief leaves the Debtors in substantial risk of a further decline in value, which would adversely affect not only Atalaya but hte employees and other contituencies in this case.

An excerpt from Creative Loafing’s closing argument (download it in .pdf):

In everyday parlance, the term “GIGO” is known to mean “Garbage In, Garbage Out.” In other words, bad information begets bad conclusions. With all due to respect to Mrs. [Stamos] NIcholas [Atalaya's valuation expert who testified that the company's value dropped $7 million in the three months after the bankruptcy filing], his opinion of the Debtors’ value in this case is simply wrong due to GIGO. For some unknown (but easily inferred) reason, Mr. Nicholas either was not given the relevant and available information about the Debtors, or chose to disregard that information while formulating his opinions. One of the more obvious impacts of this deficiency is that Mr. Nicholas’ opinion of value fails to account for an actual decline of almost 20% per month in revenues that occurred following the creation of the July 2008 Budget, a fact known to the Debtors and Atalaya as of the [bankruptcy] petition date.

Don’t wait up for a decision in our Tampa bankruptcy court hearing today; Judge Caryl Delano said early this evening that she did not plan on ruling immediately on whether lender Atalaya Capital Management should be allowed to declare Creative Loafing in default of its $31 million in loans and take over the alt-weekly chain.

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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.

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From an afternoon of Ph.D.- or MBA-level financial testimony, here’s the bottom line in the hearing for control of the Creative Loafing chain of alternative weekly newspapers:

– Lender Atalaya Capital concluded its case with testimony from Deloitte valuation expert Stamos Nicholas, who went through a detailed report he produced that concludes Creative Loafing’s value as a company dropped from $19 million on Sept. 30, 2008 — a day after it filed for Chapter 11 bankruptcy protection — to $11.4 million by Dec. 31, 2008. Nicholas blamed falling revenues and operating margins at the chain, as well as a general economic collapse in the wider economy.

CL’s attorney Tim Andreu challenged Nicholas’ report on cross-examination, pointing out that Nicholas did not speak with the chain’s management to learn more details about the financial assumptions he used for his valuation.

– CL’s case starts tomorrow afternoon at 1:30 with testimony from Creative Loafing CEO Ben Eason. CL’s own financial examination of the company puts the value much lower than Nicholas’ assessment and shows an increase in value over that same three-month time frame.

– The hearing will then be continued until Tuesday of the following week to hear from the company’s CFO and a Tampa Bay business valuation expert, after which Judge Caryl E. Delano (at some point) will rule on Atalaya’s motion to gain control of the company. Atalaya is owed $31 million from its fnancing of CL’s 2007 purchase of the Chicago Reader and Washington City Paper.

The Creative Loafing chain is in a Tampa bankruptcy court hearing today as owner Ben Eason tries to fend off his biggest creditor, which wants to take ownership of the chain and says it has “lost confidence” in Eason’s management.

Atalaya Capital Management LP, an investment fund that is owed $31 million from financing CL’s 2007 pay-down of debt and purchase of the Chicago Reader and Washington City Paper, said in court this morning that it would continue to operate the newspaper chain “as a going concern” and put more dollars into it rather than get rid of it in a fire sale.

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The owner of Creative Loafing (principally, Ben Eason, and technically he’s the debtor-in-possession) was again in federal bankruptcy court today in the company’s continuing Chapter 11 case. It was supposed to be a day-long hearing to decide whether Judge Caryl E. Delano should allow the biggest creditors — Atalaya Administrative LLC and Atalaya Funding II LP that lent more than $30 million to CL to finance the purchase of the Washington City Paper and Chicago Reader two years ago — to declare its loans in default and take immediate ownership of the alt-weekly chain.

That possible outcome didn’t happen.

Without going into lots of technical bankruptcy law and financial valuation methodology, I’ll just report that testimony in the hearing didn’t go off as planned and has been continued to March 11. Both sides, while complaining of the effect of the delays (CL’s attorney argued that every day the ownership issue isn’t settled makes it harder to find new equity partners and reorganize the company; Atalaya’s lawyer argued that the value of its collateral continues to decline and is losing the hedge fund millions) worked together during an hour-long recess to reconfigure the Chapter 11 timeline for the case.

Two more hearings, to determine the value of the company and approve part of the reorganization plan, were also scheduled on Wednesday, for late March and early April.