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Lindley Estes is a business writer for The Free Lance-Star and This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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Judge hears evidence in FLS case

RICHMOND — Companies that are interested in bidding on the assets of The Free Lance-Star Publishing Co. probably won’t participate in an auction if Sandton Capital Partners is allowed to credit bid the full amount it is owed, an FLS financial adviser testified Monday.

Suzanne Roski of Protiviti Inc.’s Richmond office gave that testimony during a hearing in front of U.S. Bankruptcy Judge Kevin R. Huennekens.

The judge heard evidence in the case Monday and will return to court Tuesday morning to hear arguments from attorneys and potentially issue a ruling on how much Sandton will be able to credit bid.

Roski’s firm has been helping the FLS prepare financial valuations, cash-flow estimates and marketing materials for potential bidders.

Roski said about 30 entities have signed non-disclosure agreements with the FLS indicating interest in bidding on at least some of the company’s assets — which include the newspaper,,, WFLS, WVBX, WWUZ, WNTX, Print Innovators, several real estate properties in the city and additional digital products.

About 20 of those entities have gone into a “data room” that Protiviti set up to provide more financial information on the FLS to potential bidders. Some have expressed interest in buying only some of the assets.

Roski said the bidders probably won’t participate if $38 million is the opening offer. That is the approximate balance of a loan Sandton purchased last summer from BB&T that had been made to the FLS in 2007 to build Print Innovators, a state-of-the-art commercial printing plant on Belman Road in Fredericksburg.

Roski said it’s possible that third-party bidders might eventually get up to $38 million during an auction process, but she doubts there will be participants if that is the starting price.

Credit bids are frequently used in bankruptcy court. They typically allow secured lenders to bid the amount they are owed without putting up any additional cash.

Attorneys for Sandton, a New York-based investment firm, have argued that the firm should be able to credit bid the full amount of the loan balance. They have also argued that the bid should cover just about all of the FLS’ assets, most of which were pledged as collateral for the loan.

FLS attorneys are making the case that Sandton should be able to credit bid only up to the amount the firm paid BB&T for the loan. Sandton has not disclosed how much it paid, but it is likely substantially less than the current loan balance.

FLS attorneys have also argued that Sandton isn’t entitled to credit bid on assets that weren’t specifically put up as collateral for the loan — including the company’s three Fredericksburg-area radio towers, vehicles, life insurance policies, Federal Communications Commission licenses and certain bank accounts.

The radio towers have been an especially contentious issue. Sandton has argued that the towers are necessary for the FLS’ radio operations, whose earnings were pledged as collateral for the loan.

FLS attorneys have cited legal precedents in which creditors haven’t been allowed to credit bid the full amount of the loan, including a recent Delaware bankruptcy case involving hybrid carmaker Fisker Automotive Inc.

Interested parties have until May 9 to submit a bid. The auction will be held May 15, and a sale hearing is expected May 22.

The assets are expected to be sold officially by June 20, followed by a second closing to sort out FCC issues.

The FLS, which remains profitable, never missed a loan payment to BB&T, but fell out of compliance with an agreement governing the ratio between earnings and debt. The FLS tried to refinance the loan and sell the company, but it wasn’t able to command a price acceptable to BB&T.

Other than Sandton, the FLS has just one significant creditor: the Pension Benefit Guaranty Corp., due to an under-funded pension obligation of about $5 million. That federal agency could take over the pension plan during the bankruptcy process after the assets are sold, meaning the new owner wouldn’t inherit the plan.

If the PBGC takes over the fund, all but a few current and past FLS employees would receive their full pension benefits and the others would get most of their benefits.

The FLS is now operating normally as a debtor-in-possession inside bankruptcy protection. The company brought in about $35 million in revenue in 2013, according to court documents, down slightly from 2012.

FLS Publisher Nick Cadwallender testified in court Monday that the Rowe family, which has owned the newspaper for more than a century, wants the new owner of the company to treat the assets with respect and continue to tell the story of the Fredericksburg community through its various products.

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