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FLS case returns to court Monday

The outcome of a Monday morning hearing in federal bankruptcy court could help determine the new owner or owners of The Free Lance–Star Publishing Co.’s assets.

The hearing in front of U.S. Bankruptcy Judge Kevin R. Huennekens in Richmond will focus on how much of a credit bid Sandton Capital Partners will be able to make during the auction process for the media company’s assets, according to court filings.

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.

Sandton attorneys have argued that the New York-based investment firm should be able to credit bid the full amount of the loan balance—roughly $38 million. 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.

The company’s assets include the newspaper, fredericksburg.com, freelancestar.com, WFLS, WVBX, WWUZ, WNTX, Print Innovators, several real estate properties in the city and additional digital products.

Attorneys for The Free Lance–Star have argued in court filings 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, certain bank accounts and more.

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 indicated that almost 30 entities have expressed interest in bidding on the company’s assets, and have said that allowing Sandton to credit bid the full amount of the loan would create a “chilling effect” on the auction process.

FLS attorneys have also 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.

Potential bidders are primarily working through the FLS’ financial adviser, Suzanne Roski of Protiviti Inc.’s Richmond office. 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.

Bill Freehling: 540/374-5405

bfreehling@freelancestar.com

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