As the clock ticks toward a 9:30 a.m. bankruptcy hearing that could today decide the fate of Alaska’s largest news organization, confusion reigns.
An Unsecured Creditors Committee (UCC) has asked federal Bankruptcy Court Judge Gary Spraker to stall the sale of the Alaska Dispatch News/ADN.com pending an appraisal of its value, and GCI, the telecom and cable company that owns the building that houses the newspaper’s only working press, has filed a motion saying a report that it would allow anyone to print for free through the end of the year is wrong.
Both motions threaten to delay the transfer of the news organization to the Fairbanks-based Binkley Company LLC, and any delay risks killing ADN. The operation is already running on $1 million worth of borrowed time thanks to the Binkleys, who almost a month ago loaned the failing company that amount of money to keep it from folding.
The ADN loses about $125,000 per week or approximately $500,000 per month. And the original Binkley loan took an almost immediate hit of more an a quarter-million dollars to make a three-month-past due payment on the ADN’s employee health insurance.
It is unclear as to whether ADN will be able to meet payroll in another two weeks without another loan, and it is unclear whether the Binkleys would offer further funding without a sale.
The Binkleys have offered to buy ADN for $1 million. That offer will be the first order of business for Spraker today when the hearing begins in the Old Federal Courthouse in downtown Anchorage. Canadian interests associated with the Glacier Media Group in Vancouver, British Columbia, Canada have also been in Anchorage exploring a purchase, but had made no formal offer as of Sunday.
Michael Mills, the attorney for the UCC, said it isn’t trying to kill the sale, but….
“It appears that Binkley is paying an alarmingly low amount for the assets it is purchasing, which includes a sizable ongoing business – revenues of over $20 million per year,” Mills wrote. “Comparing the $1 million price being paid to the scheduled values provided by the debtor for all of the assets (approximately $11.8 million according to the latest filed Summary of Assets and Liabilities) leads one to scratch their head and ask ‘why so low?'”
The answer might be as simple as an over-valuation of the company’s assets. One veteran Alaska publisher who went over the ADN financials concluded the company “isn’t worth anything.”
Newspaper values are crashing everywhere. The New York Daily News last week sold for $1, although the purchaser did agree to pick up an estimated $30 million in liabilities, primarily for pensions.
Tronc, formerly the Chicago Tribune, made the purchase and has plans for “expanding NYDailyNews.com and using the Daily News printing plant to produce Tronc’s papers in Allentown, Pennsylvania and Hartford, Connecticut,” CNN reported.
The ADN has no printing plant to offer a buyer. It was trying to build one along Arctic Boulevard on the south edge of Anchorage’s Midtown, but bankruptcy filings have revealed “the installation of the press has not been completed, and there is no path towards that press ever working.”
In Bankruptcy Court last week, an ADN attorney suggested that were the Binkleys or anyone else to buy the newspaper and website out of bankruptcy on Monday, the ADN’s only functioning press would be available for use free through the end of the year.
That press is located in the old Anchorage Daily News building on Northway Drive. GCI bought the building from Alice Rogoff in 2014 for $15 million. The purchase helped facilitate Rogoff’s $34 million purchase of the ADN – the state’s dominate new source – from The McClatchy Company in California.
Rogoff was supposed to get her press out of GCI’s building in 18 months. It is still there. GCI is now in state court trying to evict her and suing for $1.4 million in unpaid rent, utilities and penalties.
Not so fast
The company has said it would try to work with any ADN buyer to keep the newspaper alive, but in a motion filed with the court said ADN misrepresented GCI’s position in claiming a “buyer may use seller’s printing press and other equipment located at that (GCI) location at no charge to buyer until Dec. 31, 2018.”
“To be clear,” the motion said, “GCI was not consulted….GCI objects to
the (ADN’s) mischaracterization of GCI’s interest, lack of interest, intentions, or agreements….GCI is negotiating with Binkley the terms of a short-term lease pursuant to which will allow Binkley to use the GCI property. That lease has not yet been finalized. GCI has not been contacted by any other proposed purchaser concerning the use of the GCI property.”
GCI attorney Peter Cal added that his client didn’t want the Bankruptcy Court to take any action to try to force GCI to allow anyone to use its property without “GCI’s express consent.”
The filing also indicated the Binkleys are interested in buying the old ADN press, but where they would put it and how such a deal would work is unclear. When Rogoff bought the ADN from McClatchy, she agreed to cover the costs of removing and disposing of the old press, which has previously been described as outdated and worthless.
Removal costs have been estimated at $1 to 1.5 million.
Having put up with hosting a printing operation in its new building long past when it wanted to do so, GCI appears to simply want to be rid of the newspaper’s most important piece of equipment. That adds an incentive for the court to act fast if the ADN is to be saved, but the creditors’ committee thinks things have already been moving too fast.
“With the speed of the sale, and the UCC just retaining counsel, there has been no time to get any experts involved as to the values of the specialized assets at issue, or whether there is any viable business to be salvaged with proper restructuring,” Mills wrote.
“On this last point, it appears that Ms. Rogoff’s desire to keep the entire operation intact prevented her from taking any ‘normal’ steps to restructure the business (no appraisals have been completed, etc.); instead, she kept funding losses and did not change the direction of the floundering company.
“It appears that Ms. Rogoff continued to operate the business due to her political
and community desires rather than out of a profit motive. She continued to operate the
business for a substantial period of time after losses began, and funded these loses until
she decided not to do so.
“Given her desire to continue the viability of the ADN platform, the UCC has concerns whether she desires to obtain the highest price for the assets, or
rather find a buyer who will retain the integrity of the paper for the community. This is
an admirable motivation, but she has stopped the music and left many small, local
vendors without a chair and holding the bag. Ms. Rogoff and ADN owe a duty to
creditors and not just the idealistic notion of retaining the newspaper and platform.”
Meanwhile, Mills wrote, the unsecured creditors have some issues with Northrim Bank.
Rogoff owes the bank about $10 million. Northrim and GCI provided most of the funding for Rogoff to buy the ADN. The bank personally loaned Rogoff $13 million for a year to help conclude the purchase. The loan was later renewed and restructured and in March of this year the ADN became collateral.
Mills suggested the latter could represent a “fraudulent transfer.”
In short,” he wrote, “the Northrim loan was made to Ms. Rogoff personally in
2014 to allow her, through some entities she owns 100 percent, to purchase the stock of ADN from McClatchy. As she testified at the (creditors’) meeting, the loan was an acquisition loan that allowed her to buy the stock of ADN.
“None of the money loaned by Northrim was paid into ADN or used in any way that was beneficial to ADN. There is a long line of case law that finds ‘upstream guarantees’ as subject to attack as fraudulent transfers. If this argument is viable, then any payments made by ADN to Northrim would be subject to recovery as fraudulent transfers as well.”
The ADN reportedly paid Northrim about $50,000 of the Binkley loan money as an interest payment on the Rogoff loan last week. The Rogoff/ADN finances are as tangled as an Alaska alder thicket.
Mills suggested Spangler remove Northrim as a secured creditor with access to any ADN assets.
“ADN is not an obligor (on Rogoff’s loan) and it is unclear as to its status as a formal
guarantor,” he wrote. “Northrim has various collateral grants from Ms. Rogoff, including her marital settlement payments, which are reported to be very substantial, and her Wells Fargo investment accounts, estimated at $1.7 million.
“There may be additional collateral that secures the Northrim debt that has a balance of approximately $10 million at this time. Under the doctrine of marshaling, the court can force Northrim to look to Ms. Rogoff and the collateral she has pledged for Northrim’s debt satisfaction.
“This would leave the value of ADN estate assets for the unsecured creditors.
“For the above reasons, the UCC conditionally objects to the sale of assets to the
Rogoff’s “marital settlement,” as Mills called it, is a spousal agreement with estranged husband David Rubenstein. He is estimated to be worth $2.5 billion. He pays Rogoff a reported $5 million per year.