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Judge sides with FLS, protects radio assets

RICHMOND—Sandton Capital Partners will be allowed to place a credit bid on most, but not all, of The Free Lance–Star Publishing Co.’s assets.

U.S. Bankruptcy Judge Kevin R. Huennekens made that ruling Tuesday following a two-day hearing in the FLS’ bankruptcy case. He has not yet set an amount that Sandton will be allowed to credit bid.

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

Sandton purchased a loan from BB&T last summer that had been made to the FLS in 2007 to build Print Innovators, a commercial printing plant on Belman Road in Fredericksburg. The outstanding balance is about $38 million.

Sandton will be allowed to credit bid on all the assets on which it has a lien from the original loan agreement between BB&T and the FLS. That includes the newspaper,,, WFLS, WVBX, WWUZ, WNTX, Print Innovators, several real estate properties in the city and other digital products.

Sandton attorneys have argued that the New York-based investment firm’s credit bid should also cover assets on which it doesn’t have direct liens—including the company’s three radio towers, vehicles, life insurance policies, Federal Communications Commission licenses and bank accounts.

Huennekens sided with the FLS’ attorneys on excluding those assets from the credit bid. He also called Sandton’s efforts to get liens on those assets an example of “inequitable conduct.”

Tuesday’s ruling sets up the possibility that Sandton could take over most of the FLS’ assets while another entity buys the remainder, many of which involve the company’s radio operation. It’s also possible that FCC rules on media ownership could require the radio and newspaper properties to be owned by separate entities.

Sandton could still bid on the assets on which it doesn’t hold liens, but it would have to put up additional money to do so.

Attorneys for Sandton, the FLS and a committee of additional creditors will return to court Monday afternoon to figure out how much of a credit bid Sandton will be allowed to make for the assets on which it has liens.

Sandton’s attorneys have argued that the firm should be allowed to credit bid the full $38 million loan balance. But the FLS’ attorneys and financial adviser have said allowing Sandton to credit bid the full amount would likely deter other interested buyers from participating in an auction for the company’s assets.

Huennekens on Monday will hear testimony from the FLS’ financial adviser, Suzanne Roski of Protiviti Inc.’s Richmond office, regarding the valuation of the assets on which Sandton has a lien.

Sandton might before then also confidentially disclose how much it paid BB&T for the loan. Sandton has not said how much it paid, but it is likely substantially less than the loan balance.

After hearing one or both of those two numbers, Huennekens could issue a ruling on how much of a credit bid Sandton will be allowed to make. The judge also noted that he hopes the sides can come to an agreement before Monday’s scheduled hearing.

The credit bid amount would then be circulated to parties interested in bidding on the assets. About 30 entities have signed non-disclosure agreements with the FLS indicating interest in bidding on at least some of the company’s assets.

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 main creditor: the Pension Benefit Guaranty Corp., due to an underfunded pension obligation of about $5 million.

If the federal PBGC takes over the fund after the assets are sold, all but a few current and past FLS employees would receive their full pension benefits. The new FLS owner wouldn’t inherit the plan.

The FLS is now operating normally as a debtor-in-possession inside bankruptcy protection.

Bill Freehling: 540/374-5405


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