The Political Whore

Nobody 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.

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I’m headed over to the Tampa federal courthouse to report on Federal Bankruptcy Judge Caryl E. Delano expected ruling after she hears both sides (and maybe more) argue about the rules and procedures for the planned Aug. 25 equity auction that will determine who owns the post-Chapter 11 Creative Loafing alt-newspaper and online news company. Will update once the 11:45 am hearing is over.

In the meantime, you can download the proposed rules and procedures in .pdf.

There is a lot of talk about the 2011 Tampa elections, how all or almost all of the City Council could be turning over, due to higher ambitions, term limits and (in the case of Joseph Caetano) susceptibility to being beaten.

Caetano has had his hair styling business in Chapter 11 bankruptcy court (just like my own publication!) since November, but now comes a headline that surely will be on attack mailer ads in 2011: Caetano bought pricey Super Bowl tickets despite his financial straits.

From Mike Deeson at 10 Connects:

Meet Tampa City Councilman Joseph Caetano, who has fallen on tough times. But, despite the fact Caetano closed his Bostonian Hair Studio and Spa and filed bankruptcy in November, he took advantage of the offer to elected officials and bought two Super Bowl tickets for $1,000 a piece.

Caetano says it was one of those last minute decisions that he debated whether he should or should not buy the tickets. In the end, Caetano decided he should buy the tickets.

Caetano says he worked hard all his life and he felt he deserved it.

Media times are tough all over. The Tribune Co., owner of the South Florida Sun-Sentinel, is in bankruptcy court and apparently is having trouble paying its file copying tab on a timely manner. So the clerk’s office in Palm Beach County has cut off Sun-Sentinel reporters, according to the Daily Pulp:

Hi all,

Just a heads up about something that may impact you the next time you request a court record from the Clerk’s office (either in person or by email). Unfortunately, until further notice, Sun Sentinel reporters will need to pay for court records when they receive them. The practice of billing your company at a later date is being suspended due to outstanding invoices with Tribune Media. We know the suspension of the Sentinel’s copy charge account makes your job more difficult, so we sincerely hope to we able to resume the convenience someday in the near future.

Julie Rosborough
Media Relations/External Communications Specialist – Communications Management

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.

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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It was A Tale of Two Media Companies as Creative Loafing CEO and President Ben Eason testified Thursday afternoon during a hearing to determine whether he keeps ownership of the alt-newspaper chain.

Or perhaps I should write, ownership of the alt-digital media company. Much of Eason’s testimony concerned the collapse of the print news publishing economic model starting in 2005 and accelerating with the advent of the current recession in mid-2008. Under direct examination from CL’s bankruptcy lawyer David Jennis, Eason detailed how the company responded to 20 percent decreases in advertising revenues that he says company officials started seeing in July 2008.

“There’s been significant changes in our business…” Eason said in what qualified as the understatement of the day.

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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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From philly.com:

Philadelphia Newspapers L.L.C., which owns The Inquirer, the Philadelphia Daily News, and Philly.com, filed for bankruptcy protection today in a bid to restructure its $390 million in debt load.

The company, bought by a group of Philadelphia-area investors for $562 million in 2006, said the voluntary Chapter 11 filing would not interrupt its daily operations.

“This restructuring is focused solely on our debt, not our operations,” chief executive officer Brian P. Tierney, who led the group that provided about $150 million of the purchase price three years ago, said in a news release.

From the Wall Street Journal:

A group of Sirius XM Radio Inc. creditors says it is prepared to seek the ouster of Chief Executive Mel Karmazin and other senior executives if the company files for bankruptcy instead of cutting a deal with an investor that would allow it to remain solvent.

“Creditors will act quickly and definitively if they perceive that management is acting in their own interest and not in the best interest of the estate,” said Edward Weisfelner, a partner with Brown Rudnick LLP, the law firm representing the creditor group. “The board of directors should carefully consider the ramifications.”

From former CL Atlanta staffer Steve Fennessy writes in his Atlanta mag blog:

For those who think I’ve let lapse my casual obsession with the Creative Loafing Inc. bankruptcy, rest easy. There’s more news! Turns out that Brian Conley, who once owned the alternative newspaper in Knoxville, TN, and is now helping to finance the Sunday Paper’s expansion into other cities, has offered to buy all six papers in the Creative Loafing chain. Offer price? $13.3 million.

In a response to an email I sent him, Ben Eason, Creative Loafing Inc.’s CEO, said his company’s financial adviser, Bryan Crino, has been in touch with Conley. However, Eason wouldn’t characterize what reaction, if any, he has to the offer. “You can read any and all about CL on our websites when there is something to report,” he wrote in the email.

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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.

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.

I’ll be down at the federal courthouse today at 2 p.m. as Bankruptcy Judge Caryl E. Delano could decide if lender Atalaya gets to enforce its default on $30 million+ worth of loans and assume control of our newspaper chain from current CEO and chairman Ben Eason.

Here’s Atalaya’s amended motion in which it argues it is better able to run CL than Eason and the current owners.

Our colleagues at the Washington City Paper have posted a hilarious and insightful parody of our bankruptcy filings. Here’s an excerpt:

6. The journalism/content of City Paper has also undergone a significant upheaval in the age of the Internet. Even before City Paper began placing its stories online, its journalists suspected that perhaps not a great multitude of readers were reading their work. Specific concerns clustered over the paper’s cover story, often a long piece of narrative journalism exceeding 5,000 words. Other questions about reader popularity attached to smaller news stories as well, which often related to landlord-tenant disputes, police misconduct, and, once, the rise of chai.

7. Web traffic numbers have confirmed the editorial department’s concerns. In early 2006, for instance, a City Paper staff writer began a written correspondence with a federal inmate named Thomas Sweatt, who was serving a life sentence for setting a series of fires in the Washington area. The letters continued for more than a year, as did a parallel investigation into the damage done by Sweatt’s fire-setting. The investigation turned up two deaths from Sweatt’s rampage that the public did not know about. The story would later win the Livingston Award. The paper posted the story, titled “Letters from an Arsonist,” on washingtoncitypaper.com on June 1, 2007, since which point it has attracted 5,748 pageviews. Meanwhile, an item on the paper’s blog titled “Obama, You’ve Got Something….” has attracted 10,128 pageviews in the past five weeks alone. The blog item was a commentary, written in a ranting style, on the appearance of a fragment of saliva on the face of Democratic presidential nominee Barack Obama during his 2008 convention speech.

You can read the entire pseudo-court document online.

Filed under Ch. 86 for news reorganization