Chicago Reader's new owner seeks alternative path for paper's survival

Subject:

Comments:
: Chicago Reader's new owner seeks alternative path for paper's survival : Michael Bogdan, chief of Atalaya hedge fund, will try to make it work : By Michael Oneal : Tribune reporter : August 30, 2009 : Michael Bogdan's story won't surprise anybody who has watched the unraveling of the newspaper business in recent years: : Publisher loads up on debt for an ambitious deal, ad market plummets, deal goes bad, it all ends up in bankruptcy court. : In this case, Bogdan and his hedge fund, Atalaya Capital Management, lent $30 million in 2007 to a smallish Tampa company called Creative Loafing Inc. so it could take over the struggling Chicago Reader and its sister Washington City Paper. : Now, after winning a bankruptcy court battle against Creative Loafing's founding family last week for control of the company, Bogdan has joined the ranks of money men searching far and wide for a newspaper business model that can survive the digital age. : "If we or anybody else had seen what was coming, nobody would have done these deals," Bogdan said last week in a telephone interview from his New York office. : The question now, of course, is whether Bogdan can salvage this one. : Creative Loafing's former chief executive, Ben Eason, warned that as a financial buyer, Atalaya would only seek to liquidate the company to recover what it could. But Bogdan said that even if that's what he wanted to do, it simply wouldn't make any business sense. : "There's very little liquidation value for these papers," he said. "There just aren't that many buyers right now." : The good news is that Creative Loafing is starting fresh. Atalaya agreed to wipe out more than half its claim against the company, and what's left it now owes to itself. The $5 million Atalaya paid to take control also will resolve claims by trade creditors. : Without a mountain of debt, Creative Loafing is generating positive cash flow, he said, and that makes it feasible to "put the resources in place and do our best to make the papers grow." : Bogdan said that individual papers, including the Reader, will be able hire some new employees "to fill holes where they need to grow." In Chicago, he said, that will likely mean adding back across the board in editorial, sales and administration, although he said it's too early to be specific. : But not having a specific game plan could be treacherous. Experts say papers like the Reader face enormous odds. Circulation has been falling for several years, and the paper faces new competition for its core classified and entertainment listings from the Internet, as well as from print rivals such as Time Out Chicago and the Chicago Tribune's RedEye. : Bogdan acknowledged that even his new employees, especially Creative Loafing's journalists, will be highly skeptical. : "I don't expect people to trust me right now," he said. "The proof's in the pudding." : Atalaya, which Bogdan said manages about $900 million in capital, invests in the debt of small and medium-size companies. It issues loans and buys debt on the secondary market, but about 80 percent of its investments are in senior secured debt, which is at the top of the pecking order if things go bad. : The firm tends to focus on distressed companies and is involved in about 40 different situations, Bogdan said, though he wouldn't name any others. Atalaya, like most hedge funds, he said, tries to keep a very low profile. : Bogdan, 33, joined the firm in 2006 after graduating from the University of Pennsylvania and working for several other financial firms, mostly in private equity. When the Creative Loafing deal came along the next year, he said the numbers seemed to support combining the company's alternative weeklies in Atlanta, Tampa, Charlotte, N.C., and Sarasota, Fla., with the Reader and Washington City Paper. : Even modeling in "the destruction of the classified business" by Web outfits such as Craigslist, Bogdan said the company appeared to have enough cash-flow potential to support a substantial debt load. : "What we didn't model in was the destruction of all the other revenue sources," Bogdan said. "Unfortunately, we did not have a crystal ball." : Whether newspaper dealmakers really needed a crystal ball to see the storm beginning to roil the industry in 2007 is a growing source of debate. A bondholder group in Tribune Co.'s Chapter 11 case last week asked for permission to investigate the 2007 leveraged buyout that put billionaire Sam Zell in charge, claiming that he and his lenders acted irresponsibly by loading the media conglomerate with debt when evidence of ad-market erosion was plentiful. (Tribune Co. owns this newspaper.) : The Reader was certainly showing major signs of stress when Creative Loafing bought it. The weekly, which launched in 1971, was losing money and advertising. Creative Loafing stopped the bleeding through several rounds of job cuts, new printing and distribution arrangements, shared resources with other Creative Loafing papers and a transformation into a smaller tabloid. : "Those were smart moves," Bogdan said. "Now we have to sell better and work on the editorial." : Bogdan said building up the company's Internet presence will obviously be important, but he doesn't pretend to have all the answers. Instead, he's relying on a newly hired team of print and online experts, including two familiar to the Chicago area: James O'Shea, a former managing editor of the Chicago Tribune and editor of the Los Angeles Times, who will be an editorial adviser and board member, and Richard Gilbert, former president of the Des Moines Register and chief executive of Glenview-based Pioneer Press, who will take over as interim CEO. : They have just started to come up with a game plan and are visiting all the papers to gain their ideas about how to improve the product. : "I'm not saying we have all the answers," Bogdan said. But "the cuts have already been made. We'll go from there."

Optional Link URL:
Link Title:
Optional Image URL:

Enter verification code: