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FLS note holder appeals judge’s ruling on bid

Sandton Capital Partners has appealed a bankruptcy court ruling that limits the amount it can credit-bid on the assets of The Free Lance–Star Publishing Co.

U.S. Bankruptcy Judge Kevin R. Huennekens on March 31 limited Sandton to a $13.9 million credit bid on the FLS’ assets in part to ensure a robust auction process. Sandton is the FLS’ primary creditor and holds a loan made to the company that has an outstanding balance of about $38 million, the amount the firm believes it is entitled to credit bid.

Sandton attorneys this week filed paperwork seeking an immediate appeal to a U.S. District Court judge for the Eastern District of Virginia.

Interested parties have until May 9 to submit a bid for the FLS’ assets. The auction will be held May 15, and a sale hearing is expected May 22.

Several prospective bidders have visited the FLS recently.

Sandton attorneys argue that the appeal must be considered before the auction to prevent “irreparable harm to the secured lender.” The firm is also appealing a ruling that it doesn’t have liens on the FLS’ radio towers and certain other assets.

A hearing on the matter is scheduled today at 1 p.m. in Huennekens’ courtroom.

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.

New York-based Sandton bought a loan from BB&T last summer that was made to the FLS in 2007 to build Print Innovators, a commercial printing plant on Belman Road in Fredericksburg.

Huennekens restricted Sandton’s credit bid to $1.2 million on the radio assets and $12.7 million on the remainder. Potential buyers will be able to bid on the radio assets separately from the remainder, or as one package.

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.

The FLS is now operating normally as a debtor-in-possession inside Chapter 11 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