Strib: Not quite dead yet, but as hypocritical as ever

In response to the New York Post’s article yesterday, the publisher of the Minneapolis Star Tribune insisted that the paper has not missed its debt payments yet and that its creditors do not want to run the newspaper. Christopher Harte issued a statement late yesterday denying that the Strib is close to bankruptcy, but also announced the hiring of a private equity firm to evaluate the Strib’s finances. Their choice of firms calls into question their own reporting on the business industry:

Faced with sliding advertising revenue amid a continuing slowdown of the newspaper industry, the Star Tribune said Sunday that it has hired an adviser to evaluate its finances.

The hiring of the Blackstone Group, a New York private equity firm, comes as the Star Tribune struggles to make debt payments under loan terms struck slightly more than a year ago, when projections showed the newspaper making more money than it is today.

The Blackstone announcement came after a Sunday story in the New York Post said the newspaper had failed to meet its debt obligations and was near bankruptcy.

Star Tribune publisher and chairman Christopher Harte said the Star Tribune has not filed for bankruptcy, nor is it about to.

“The Star Tribune currently has sufficient liquidity and is current on all its debt payment obligations,” Harte said in a statement issued Sunday afternoon. Pressed further, he said the newspaper would not miss a debt payment this year unless things worsened.

The picture looks far from rosy. Avista leveraged $430 million to buy the Strib, and it apparently used overly optimistic advertising revenue projections to qualify for the loans. In the last two years, annual revenue has dropped by $75 million, and classified ad revenue has declined by 50% since 2000. The paper is about to enter negotiations with the employee union, and it looks like the Strib will demand concessions to offset the losses.

Interestingly, the Strib hired Blackstone even though its business columnist, Neal St. Anthony, criticized private-equity funds such as Blackstone. St. Anthony wrote last February:

Some of the huge private equity deals of 2007 have been justly mocked for excessive debt and huge paydays for the executives and the financial bagmen who lube the deals with others’ money. …

Amid reports of multimillion-dollar executive paydays at outfits such as Cerberus Capital, Carlyle and Bain Capital, the Wall Street Journal and others have reported about huge layoffs at companies they own and growing percentages of “distressed debt” in their portfolios.

Fred Zimmerman explicitly included Blackstone in a profile on “predatory investing” last January:

The sheer magnitude of recent private equity investments is mind-boggling: Among them have been a $48.5 billion offer for a Canadian telecom group, a potential $22 billion bid for a British cable television company, and the $26 billion purchase of Hilton Hotels. The research group Private Equity Intelligence suggests that $240 billion of private equity money was raised in the first half of 2007, well beyond the 2006 record of $459 billion.

The Blackstone Group by itself reportedly has $98 billion worth of assets under management. KKR has $86 billion. About $600 billion in buyouts were announced in the first half of 2007.

Yet there are honest questions regarding the role of what is often predatory investing. … Although many of us might rejoice at the sudden reversal of fortunes for the predatory investors, we may find that the bulk of this misfortune will fall upon others, rather than to the managers of the private investment funds. The two founders of Blackstone, for instance, sold $2.6 billion of stock during that company’s initial public offering in June.

Now, however, Blackstone is the Strib’s preferred cure for what ails it financially. That seems just a wee bit hypocritical, doesn’t it? Either the Strib lied about Blackstone’s greed just a few months ago, or they don’t care any more about greed as long as they benefit from it.

It’s a rather revealing moment, and not one that surprises anyone who has followed the Strib’s travails. Perhaps they have not reached financial bankruptcy, but they certainly have experienced editorial bankruptcy.

Update: A cautionary word from HA reader John M:

There is a clear distinction between ‘met current obligations’ and bankruptcy. The former is having the cash on hand to pay the bills. The latter a legal tool to fend off creditors. Technically the owner could be correct on both terms and the STrib could still be headed for liquidation. Its a matter of when of course, not how.

Nor do I think that the Blackstone insertion is a guarantee of success. The Tribs current situation is like a car owner who is flipped on his payments to car value. Sure he can get some dealer to roll over the debt into a new car but that really does not solve the problem does it. Blackstone at best would be able to stretch out the loan terms lowering the debt stream. But that only raises the total debt payable over the loan life.

STrib is probably looking at bankruptcy protection in the next 5 years even with a Blackstone intervention. Significantly less if Blackstone does not intervene.

True.  I think the position of the Strib in this announcement is that the situation isn’t quite as dire as the Post painted, but it still is bad enough to warrant outside intervention, if possible.  Management teams don’t invite Blackstone in for a look at the books unless something is seriously wrong, and that seems rather obvious.