A day before a federal bankruptcy court judge is due to start untangling the finances of Alaska’s largest news organization, a trustee for the debtors owed millions of dollars has raised serious questions about conflicts inherent in a group of potential buyers coming to the rescue to try to keep the Alaska Dispatch News afloat.
“The United States Trustee is…concerned about the representations made to the media in this case suggesting that Binkley took over the debtor’s operations this past Sunday,” Gail Brehm Geiger, the acting U.S. Trustee for Region 18, wrote in a brief filed with the court early today. “To the extent Binkley has taken over the debtor’s operations and has directed the appointment of a manager to control the Debtor’s operations, Binkley now falls within the definition of an ‘insider’ under section 101(31)(B) of the bankruptcy code, and Binkley’s transactions with the Debtor are now subject to a higher level of scrutiny.”
The Binkley Company, a Fairbanks-based tourism business, has taken the lead in trying to save the state’s largest newspaper and largest news website, ADN.com. The company is reported to have a cash-flow problem so severe it was on the verge of being unable to afford the ink and/or paper to print further newspapers.
The Binkleys and Alaska Media LLC said they came to the aid of publisher Alice Rogoff because of their interest in the future purchase of the newspaper if, indeed, it can be made whole.
At the moment, according to bankruptcy court filings, the newspaper loses $125,000 every week it prints. The Binkleys have retained Jerry Grilly, a former publisher of the Anchorage Daily News – which Rogoff bought for $34 million in 2014 and renamed the Alaska Dispatch News – to try to figure out why the costs of running the business so far exceed the revenues it brings in.
The newspaper has been bleeding money since Rogoff bought it. From the beginning, she rejected Dispatch News president Tony Hopfinger’s advice that costs needed to be cut. Hopfinger was the co-founder of AlaskaDispatch.com, the internet startup Rogoff funded in 2009 in order to move into position to make a bid for the News, a legendary publication owed by the California-based McClatchy Company.
Rogoff thought that if she owned the News she could become an Alaska media baroness. It didn’t quite work out that way.
Over the course of about three years, Rogoff lost an estimated $15 to $18 million and rendered the business she bought near worthless. The Binkley/Alaska Media group has suggested it would be willing to pay “up to $1 million” for it – if the partnership decides the Dispatch News can be saved.
It is the saving part that has raised issues.
Public v private
In a court filing Tuesday, Rogoff argued that the newspaper is so vital to the social fabric of Alaska that it deserves special treatment in bankruptcy court.
Within 24 hours, Geiger – whose job is to represent the people Rogoff owes money – was questioning that. In her court filing, she confessed she is still trying to sort Rogoff’s tangled finances, and said the judge should avoid a rush to judgment in what is a complicated case.
Rogoff owes Northrim Bank about $10 million on a $13 million loan that provided a big chunk of the money for her to buy the Daily News. But it appears that loan might be secured in part or in whole by the spousal support David Rubenstein, one of the country’s richest men, sends his estranged wife per the terms of a marital separation agreement.
The size of those payments remains unknown, but bankruptcy filings have revealed Rogoff had been subsidizing the money-losing Dispatch News to the tune of $4 to $6 million per year or more since she bought it.
She might prove to be a textbook case of the dangers of playing with free money in a state all about free money.
During a hearing on a lawsuit Hopfinger has filed against Rogoff, one of her lawyers put her first-year, Dispatch News losses at $4 million, although they now appear to be closer to $5 million.
The Hopfinger-Rogoff relationship did not end well. After the Daily News purchase, she wrote out a now-famous agreement on an Anchorage restaurant cocktail napkin agreeing to pay Hopfinger $1 million for his remaining interest in AlaskaDispatch.com. She paid one installment of $100,000, and then reneged on the rest; Hopfinger is now in court trying to get his money.
His suit is with Rogoff personally and not with the Dispatch News, which is trying to deal with a whole other set of people who provided Rogoff materials or services for which she did not pay.
Whether she can pay is at the heart of the bankruptcy issue.
“It is worth noting…that the debtor’s (Rogoff’s) petition reflects estimated assets of $10 to $50 million and liabilities of only $1 to $10 million, suggesting that the debtor may be solvent and that Northrim may have an equity cushion sufficient to warrant a finding that they are adequately protected, however, and again, the United States Trustee reserves the right to review and object to any proposed adequate protection payments to the extent they are overreaching,” Geiger wrote.
Geiger appears to be of the view Rogoff might have access to funds to pay off Dispatch’s debts, though Rogoff has denied that in a sworn declaration. And the Binkleys, who are now running the Dispatch News as “debtors-in-possession” under the terms of an agreement with Rogoff, appear to believe she is near broke.
Geiger expressed no problems with the Binkleys running the Dispatch News, but she was nervous about how the deal is structured.
“Parties in control of a debtor’s (bankruptcy) chapter 11 operations who undertake the role of debtors-in possession owe the debtor’s creditors a fiduciary duty to maximize the value of the assets,” Geiger wrote. “The duties of a possession debtor-in possession in control of the debtor are fundamentally at odds with Binkely’s financial interests in
obtaining the debtor’s assets at the cheapest price they can. The United States Trustee is
concerned that, for example, a potential purchaser could begin negotiating with the debtor’s landlord and the debtor’s landlord could prefer that potential purchaser over Binkley and refuse to negotiate any further with Binkley.”
Two key landlords are involved with the Dispatch News.
One is GCI, the Anchorage telecommunications company, which owns the old Anchorage Daily News building which houses the Dispatch News’ only functional press. The press was supposed to be out of the building two years ago, but Rogoff balked on contracts negotiated to try to get her newspaper printed elsewhere and then tried to build her own printing plant, which turned into a fiasco.
GCI has filed for eviction and says Rogoff owes it about $1.4 million in back rent, electric bills and penalties. The money is significant for a company that just reported a $9 million loss for the second quarter of the year, according to today’s edition of the Alaska Economic Report, a subscription newsletter published for a select group of Alaska businesses.
The second landlord is Arctic Partners, a Tacoma, Wash., group that owns an old, oilfield services warehouse on Arctic Boulevard that houses Rogoff’s new printing press. An electrical contractor Rogoff refused to pay has put a lien of nearly $500,000 on the building, and there is an estimated $2 million in work still needed to make the press operational.
But there could be buyers interested in a deal with Arctic Partners. For instance, Morris Communications – which owns Alaska magazine; the Chugiak-Eagle River Star, a suburban Anchorage-area paper; and the Alaska Journal of Commerce- has in the past talked of a desire for an Anchorage printing plant.
Morris just sold its newspapers in Kenai, Juneau and Homer along with eight others largely in the south. The sale to GateHouse Media is reported to have netted Morris about $120 million. No one knows Morris’s next move, but family patriarch Billy Morris has had a decades-long love affair with Alaska and has long coveted the Anchorage news market.
Likely aware of Morris or other potential entrants in the chaotic Alaska news market, the Binkley group has proposed a debtor-in-possession (DIP) loan to the Dispatch News to keep it running with the Binkley Company controlling the flow of that money. Geiger expressed discomfort with that.
She questioned whether it gives the Binkleys too much control over what happens next. If someone else tried to cut a deal for the purchase of the Dispatch News, she wrote,
Binkley could simply “cease its DIP financing, leaving all parties without the ability to reorganize and Binkley with a super priority claim in the case for all sums it had already advanced. Based on this, the United States Trustee requests that any order authorizing the DIP loan agreement prohibit Binkley from terminating the DIP financing agreement or refusing to provide the funding called for therein absent notice and a hearing at which Binkley would need to justify its failure to advance the DIP financing requested by the debtor.”
Clearly what started as a simple, good-faith effort to clean up Rogoff’s mess is getting more and more complicated by the day.