The Free Lance-Star files for bankruptcy
UPDATE: Representatives for The Free Lance–Star Publishing Co. will Friday ask a bankruptcy court judge in Richmond to allow the company to keep operating as normal.
The FLS is now considered a debtor in possession, meaning it will continue to publish newspaper and Web content, operate radio stations and more as it restructures in bankruptcy court.
The company’s attorneys, Richmond-based law firm, Tavenner & Beran PLC, this morning will ask U.S. District Court Judge Kevin R. Huennekens to allow the company to run its operations as it did before Thursday’s Chapter 11 filing. Huennekens is expected to approve the many motions that have been filed in the case, meaning the FLS’ business won’t be disrupted by the filing.
His approval would allow the company to continue using its cash-management system to run the day-to-day affairs of the business, including making scheduled payments as has always been done.
BY BILL FREEHLING / THE FREE LANCE–STAR
The Free Lance–Star Publishing Co. filed a Chapter 11 bankruptcy petition Thursday.
The company filed the petition in the U.S. Bankruptcy Court in Richmond together with William Douglas Properties LLC, a related entity that owns a portion of the land upon which the FLS operates parts of its business.
This filing signals the end of the Rowe family’s 130-year ownership of the local media company, which developed a reputation for integrity, credibility and innovation in the Fredericksburg region and throughout the industry.
“The filing isn’t expected to have any immediate effect on the company’s employees, customers, advertisers or vendors,” FLS Publisher Nick Cadwallender said.
Cadwallender said he and all FLS directors plan for the newspaper and its related digital products to continue to be created and delivered, and the company’s radio stations to continue to operate seamlessly during the Chapter 11 process.
The primary expected change will be in the ownership of the company—whose assets include the newspaper, Fredericksburg.com, Freelancestar.com, WFLS, WVBX, WWUZ, WNTX, Print Innovators, several real-estate properties in the city and a host of additional digital products.
Though the ownership change will be sorted out by a Richmond bankruptcy court judge over the next few months, the new owner potentially could be New York City-based Sandton Capital Partners or an affiliate. Sandton now holds the loan originally obtained for acquisition of the company’s printing plant.
Sandton invests in “alternative credit opportunities, primarily through purchasing under-performing bank loans,” according to its website. “In all cases, the firm has a preference for viable operating entities with potential for restructuring/turnaround.”
Sandton is a logical front-runner for acquiring ownership of the FLS, which the Rowe family has owned in some form since 1885.
The current Sandton indebtedness can be traced to the $50.8 million loan provided to FLS in 2007 from BB&T. The company used that money to build a state-of-the-art printing plant on Belman Road called Print Innovators.
The plant was seen as a way to diversify the company by offering commercial printing services to other newspapers and additional publications. FLS’ earnings and real estate were pledged as collateral for the loan.
Print Innovators began operating in 2009, coinciding with the severe recession that sapped newspaper and radio advertising, as well as an increasing trend toward people relying on the Internet as their primary information source.
Cadwallender said the company currently has the ability to continue making its regularly scheduled payments. Moreover, the company has reduced its outstanding loan balance to about $38 million.
But commercial loans typically work differently than residential loans, in which simply making payments is sufficient. When the newspaper’s earnings fell during the recession, the company fell out of compliance with the “covenants” of the loan agreement with BB&T.
Lenders have the right to “call” loans that aren’t within the covenants of the agreement, essentially requiring the borrower to repay the full amount. In December 2011, FLS signed a forbearance agreement with BB&T in which the bank agreed not to call the loan and the FLS made additional payments on top of the regular loan requirements.
The company took many steps to try to restructure the business to become compliant with the loan covenants. That included reducing the number of full- and part-time employees from about 454 in 2007 to 303 at the end of 2013.
Employee benefits have also been reduced, and hours have been cut.
The FLS also tried to refinance its debt by approaching banks and private-equity lenders, and it even approached companies that have purchased daily newspapers in the past two years, including Berkshire Hathaway. The FLS was unable to find a loan or buyer that would have allowed the company to get out from under its debt burden.
This past summer, with permission from the FLS, BB&T sold the loan to Sandton Capital. The amount that Sandton paid for the loan has not been disclosed, but typically in such sales the purchase price is less than the outstanding balance.
Regardless of what Sandton paid for the loan, the FLS continued to owe the outstanding balance of about $38 million. Not long after buying the loan, Sandton informed the FLS that it wanted the company to file for Chapter 11 bankruptcy and sell substantially all of its assets to it as part of the bankruptcy process.
With no better option available, and wanting the company to stay in business, the FLS agreed to do so. As of the time of filing, there was neither definitive agreement with regard to the adequate protection terms to be afforded Sandton during the bankruptcy process nor with respect to the details of the contemplated sale process.
Nevertheless, the FLS determined that pursuit of a sale of the business as a going concern through the Chapter 11 process was “the best alternative to maximize the value of its assets with the hope of continuing the company’s businesses and ongoing mission to improve and connect the lives of the people in the communities it serves,” Cadwallender said.
“As you can imagine, this has been a difficult decision for the Rowe family to make, but we believe this is in the best interest of everyone involved,” Cadwallender told FLS employees during a company-wide meeting Thursday morning.
Cadwallender, who took over from longtime FLS Publisher Josiah P. Rowe III in 2011, said he hopes that the ultimate purchaser will continue to operate the company as before, and the FLS will remain a vibrant presence in Fredericksburg and the surrounding area.