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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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.

Our alt-newspaper chain has filed its Chapter 11 reorganization plan, making its case for continuing ownership and management by Ben Eason:

The Debtor believes retention of existing senior management and existing publishers, editors, directors of shared services and key online personnel are vital to successful implementation of this strategy as the markets are shifting very quickly at this time.

The reorganization plan values the company, post-bankruptcy, at being worth $8 million to $15 million. It also appears to ask creditors, especially the largest creditor, Atalaya, to accept as little as half of what they are owed as the company tries to readjust its debt load. The filing says under the reorganization plan, there would be a 100 percent chance that Atalaya would recover its $5 million-$15 million in secured debt (out of a total in excess of $30 million). The chances of getting its investment back beyond that? “Undetermined” is how the plan puts it, as it would have to split an unknown pool of money that would be left over the next three years of operations.

You can download the Disclosure Statement portion of the Reorganization Plan here. The filings include a 10-year financial forecast and an analysis of how much the company would bring if it were liquidated.

A hearing on the adequacy of the plan is set for Jan. 26 in Tampa.