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The Free Lance-Star interests 17 potential bidders

RICHMOND—Seventeen potential bidders have expressed interest in purchasing the assets of The Free Lance–Star Publishing Co., CEO and Publisher Nicholas J. Cadwallender said during a hearing Friday in the media company’s Chapter 11 bankruptcy case.

Many of the potential bidders have signed nondisclosure agreements, Cadwallender said, and some have a number of people poring over the company’s financial information to determine an appropriate bid.

“People are very interested in the assets,” he said, which include the newspaper,,, WFLS, WVBX, WWUZ, WNTX, Print Innovators, several real-estate properties in the city and additional digital products.

Cadwallender didn’t identify any potential bidders, which are primarily working through the company’s financial adviser, Suzanne Roski of Protiviti Inc.’s Richmond office.

The formal bidding process has not yet started in the case, which the FLS filed Jan. 23. A Thursday afternoon hearing is scheduled in Richmond federal court this coming week to work out the bidding procedures.

One key factor in how the bidding plays out will be how much of a credit bid the FLS’ secured creditor, New York-based Sandton Capital Partners, will be able to submit during the auction process.

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.

Sandton last summer purchased a loan 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. Sandton then advised the FLS to file for bankruptcy.

The loan balance is now about $38 million. Most of the FLS’ assets and earnings were pledged as collateral for the loan.

It’s unclear how much Sandton paid BB&T for the loan. The firm has declined to provide that number, FLS attorney Lynn Tavenner said during Friday’s hearing.

If Sandton is allowed to credit-bid up to the full $38 million, the amount it paid for the loan may not be relevant in the case.

But if a judge rules Sandton can credit-bid only up to what it paid for the loan—a ruling recently made in a Delaware bankruptcy case involving hybrid carmaker Fisker Automotive Inc.—that number may come out during the proceedings.

Associate Publisher and part-owner Florence Barnick said during Friday’s hearing that the company’s negotiations with BB&T before the loan was sold could offer some insight into how much Sandton paid for the note.

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.

Barnick said BB&T wanted $25 million and rejected a refinancing offer of $20 million. She indicated that Sandton probably paid somewhere in that range for the loan.

Cadwallender said the FLS, which Fredericksburg’s Rowe family has owned for more than a century, had trouble securing bids that were acceptable to BB&T prior to the loan being sold, in part due to an under-funded pension liability that was once as much as $14 million.

That liability is now down to about $5 million due in large part to stock market gains. The Pension Benefit Guaranty Corp. could take over that liability during the bankruptcy process, so potential bidders would not have to inherit that responsibility, as was the case before the filing.

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.

During Friday’s 341 hearing, Cadwallender painted a picture to Assistant U.S. Trustee Robert Van Arsdale of a company that has seen its revenues decline amid a slumping economy and shift of advertising dollars to the Internet, but also one that remains profitable.

Van Arsdale at one point wondered why the FLS was even in bankruptcy court. Cadwallender said people ask him that all the time and said it “seems crazy” that the company would be in its current situation despite not missing any payments before the filing.

“To this day, we could still be paying this loan quite comfortably,” Cadwallender said.

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

Cadwallender said in court last month that the company’s EBITDA—earnings before interest, taxes, depreciation and amortization—was healthier in 2013 than 2012 because of lower expenses.

Bill Freehling: 540/374-5424

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