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Sandton ‘excited’ about FLS future

The investment firm that might end up owning the assets of The Free Lance–Star Publishing Co. says it’s excited to be involved with a company that “plays an incredibly valuable role in the Fredericksburg area.”

“Throughout its long history and even through a difficult period recently, the owners and employees of FLS have continually demonstrated an unwavering commitment to serving the community,” Robert Orr of Sandton Capital Partners wrote in response to a list of questions posed by an FLS reporter.

Orr heads the investment firm’s Chapel Hill, N.C., office and has been working with the FLS’ executives since last summer, when Sandton bought a loan that BB&T made to the FLS in 2007 to build the Print Innovators plant on Belman Road in Fredericksburg.

The FLS filed for Chapter 11 bankruptcy protection Jan. 23 at the urging of Sandton, to which the FLS now owes about $38 million.

At the end of the bankruptcy bidding process, Sandton could own the FLS’ assets—including the newspaper, radio stations, Web properties, real estate and more. It is unclear whether any other parties will also bid for the assets.

Orr said Sandton has invested in media companies previously and tries to be familiar with companies operating in that business in the United States and Western Europe. He said Sandton was aware of the FLS and “felt that we might be a good source of capital for the situation.”

Orr said Sandton’s involvement in the FLS has confirmed to the investment firm the valuable role the company plays in the Fredericksburg area.

“We believe that even with the pressures facing this industry, there will always be a viable business strategy for good companies that provide trusted content to their communities,” Orr wrote. “That is one of the major things that attracted us to FLS and that excites us about the future.”

Sandton was founded in 2009 to buy “alternative credit opportunities.” It primarily focuses on buying under-performing bank loans and providing financing to troubled companies.

Since 2009, the firm has acquired or originated more than $1 billion in loans “across a very wide range of businesses,” Orr said. Most of the loans are for businesses facing “economic, industry or company-specific pressures,” he said.

“We seek to support these companies by providing the necessary capital, time and flexibility to allow them to grow and prosper,” Orr wrote.

Sandton has focused mostly on small- and middle-market businesses with potential to be turned around. The loans are usually secured by business assets such as accounts receivable, inventory and equipment.

Rael Nurick and Tom Wood founded Sandton Capital. Nurick is from an area of South Africa called Sandton, hence the firm’s name. Wood is from Staunton and did his undergraduate work at the University of Virginia.

Sandton Capital is based in New York City but also has offices in Los Angeles, London and Chapel Hill.

The FLS initially borrowed about $46 million from BB&T in 2007 and also secured a $5 million credit line that it never tapped. The FLS never missed a loan payment to BB&T, but fell out of compliance with a covenant in the loan agreement requiring a certain ratio between debt and earnings.

That led to the loan being classified as not performing.

It has not been disclosed how much Sandton paid BB&T for the loan, though it’s likely significantly less than the $38 million outstanding balance.

Orr said the bankruptcy process “is opening the door to a new era of possibility” for the FLS after a “difficult few years.”

“We want all stakeholders in FLS to know how excited we are to be involved with this company and to help play a positive role in its future,” Orr wrote.

Orr said conversations with company managers “have really energized us for what’s to come,” and he noted that “as the senior secured lender, our interests are in the success of the business.”

“We believe that success will come if FLS can continue to be the trusted source for news and entertainment that it has been for so many years before,” Orr said.

Orr added that because the FLS is so tied into the community, Sandton considers itself to be “invested in the health and growth of the Fredericksburg area more broadly.”

Orr declined to answer a question about how much Sandton paid for the loan. He also declined to answer questions about whether Sandton intends to be a long-term owner of the FLS or plans many changes should it end up owning the assets after the bankruptcy process ends.

Bill Freehling: 540/374-5405

bfreehling@freelancestar.com

ABOUT CHAPTER 11

The Free Lance–Star Publishing Co. is continuing normal operations while it reorganizes under Chapter 11 bankruptcy. Here are some key facts of the case:

  • The company, which the Rowe family of Fredericksburg has owned in some form for 130 years, in 2007 took out a roughly $46 million loan from BB&T to build the Print Innovators commercial printing plant on Belman Road.
  • The FLS never missed a payment on the loan to BB&T, but fell out of compliance with the loan agreement due to an insufficient ratio between debt and earnings.
  • In 2013, BB&T sold the loan to New York City-based investment fund Sandton Capital Partners for an undisclosed amount. Sandton then advised the FLS to file for bankruptcy.
  • The FLS filed for chapter 11 bankruptcy Jan. 23. That part of the code allows businesses to reorganize under U.S. bankruptcy laws. The FLS is continuing normal operations while in bankruptcy protection as a debtor in possession.
  • Owed about $38 million, Sandton is the only secured creditor in the case. The only significant unsecured creditor is the Pension Benefit Guaranty Corp., which is owed about $5.3 million, representing the underfunded portion of the company’s pension plan.
  • Bidders will be given the opportunity to purchase the FLS’ assets—radio stations, websites, the newspaper, real estate, Print Innovators and more—through the Chapter 11 process. The winning bidder will own the reorganized company, which will be free of long-term debt.
  • A hearing will be scheduled soon to set a timetable for the bidding process.
  • The FLS is represented by law firms Tavenner & Beran and Kaufman & Canoles, as well as financial advisor Protiviti Inc.
  • Sandton is represented by law firms Sands Anderson and Lowenstein Sandler.

 

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