Judge limits main FLS creditor
RICHMOND—Sandton Capital Partners will be restricted in how much it can credit-bid on the assets of The Free Lance–Star Publishing Co., a federal judge ruled Monday.
U.S. Bankruptcy Judge Kevin R. Huennekens limited Sandton to a $13.9 million credit bid on the FLS’ assets. The ruling followed an afternoon hearing that was closed to the public and featured testimony from the FLS’ financial advisor.
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 attorneys have been arguing that the New York-based investment firm should be able to submit a credit bid equal to the full balance of the outstanding loan, while FLS attorneys have made the case that Sandton’s bid should be capped to ensure a robust auction.
The FLS’ assets include the newspaper, fredericksburg.com, freelancestar.com, WFLS, WVBX, WWUZ, WNTX, Print Innovators, several real estate properties in the city and other digital products. Potential buyers will be able to bid on the radio assets separately from the remainder, or as one package.
Huennekens restricted Sandton’s credit bid to $1.2 million on the radio assets and $12.7 million on the remainder. Sandton could appeal the ruling.
The credit bid that the firm will be able to place on the radio assets was limited in part due to a prior ruling in the case that Sandton doesn’t have a lien on the FLS’ three radio towers or Federal Communications Commission licenses.
Sandton will still be able to bid more than the $13.9 million, but it would have to put up additional cash for any amount beyond the credit bid cap. The firm, which has not disclosed what it paid for the loan, could also get a significant portion of the proceeds from any bid that comes in higher than the cap.
In deciding to limit the credit bid, Huennekens cited a desire for a competitive bidding process, the fact that Sandton doesn’t have liens on certain company assets and the firm’s “inequitable conduct” during the process.
The credit bid amount will now 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’ next-largest creditor after Sandton is 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 also has some much smaller creditors.
The FLS is now operating normally as a debtor-in-possession inside bankruptcy protection.
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.
Bill Freehling: 540/374-5405