Facing
brutal economic forces sweeping the newspaper industry and perhaps its own missteps
in adjusting to change, Western Communications of Bend has asked a federal
bankruptcy court to approve liquidation of its assets including The Bend
Bulletin, along with six other papers and its real estate holdings.
In
a May 22 filing with the court in Eugene related to its current Chapter 11
bankruptcy case, Western argued that “orderly” liquidation would produce a higher
return than a protracted path into Chapter 7 of the baknruptcy code.
Western
had filed in January to reorganize its business and continue operating under
Chapter 11 provisions, the second time in less than 10 years for the company. But
given the company’s staggering debt load of about $30 million —much of that
involving its 87,000 square foot Bend headuarters-- Western has faced an uphill
battle in recent years. Insider shareholders including founding family members
have at times provided infusions of capital to prop up operations.
Addressing
the decision to liquidate, the company said that it believes a Chapter 7
liquidation would result in 10-15% lower value of real estate assets, “than if
sold pursuant to an orderly iiquidation.
“Further
.....the newspapers would have no going concern value, and the expenses, and carrying costs associated with the sales of the underlying
assets(e.g., equipment, inventory, etc.).could equal or exceed the value of
such assets.”
Thus
far since earlier receiving court approval to sell its newspapers and real estate,
the company says it has seen interest from 31 parties, with five of those
engaging in “follow-up discussions and negotiations.”
The
company is seeking approval by a date in June to sell one or more of its
newspaper businesses which it says could be completed in July. It anticipates possible
sale of real estate assets by October.
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| Western's liquidation analysis |
Under
the liquidation proposal no current shareholders, including some management insiders
and family members, would receive any compensation for their equity.
Western’s
plea to proceed with liquidation includes an estimate that total assets range from $25 million to $30 million, most of that in real estate with a “fair
market value of approximately $20 million.”
The
“going concern value” of newspapers ranges from $5 million to $10 million, according
to the filing.
The
largest secured creditor is Sandton Master Fund Credit Solutions III LP, a fund
of New York based Sandton Capital, which had acquired the debt from Bank of
America. BofA had taken over the debt from Washiington Mutual when that bank
collapsed during the mortgage crisis of the previous decade.
It
was a dispute over repayment provisions between Western and BofA that resulted in
the company’s earlier 2011 Chapter 11 bankruptcy filing, from which it emerged
in April of 2012.
Western
has not been making payments to Sandton for some time according to information
available in the bankruptcy filing. A company such as Sandton typically
acquires troubled loans at considerable discounts, and how much it paid for assuming
the debt held by BofA is not publicly recorded. The note’s face value
remains around $19 million.
As
Western entered the current Chapter 11 bankruptcy the court approved a “cash
collateral” payment by Sandton of $1.6 million to permit the company to continue
operations.
Only
days before the January 22 Chapter 11 filing, several family members and
management with equity in Western recorded
claims totaling $253,000 against the company’s SW Chandler Avenue headquarters
and production facility. Those are now treated as secured in second position behind
the Sandton claims.
