Creative Loafing avoided a takeover attempt by its largest creditor Tuesday, but ultimate control of the Tampa alternative weekly newspaper chain remains uncertain.
U.S. bankruptcy Judge Caryl Delano thwarted Atalaya Capital Management's move to seize Creative Loafing Media's assets as collateral for $31 million it lent the newspaper in 2007.
The New York hedge fund had to prove that Loafing owner Ben Eason had driven the company into the ground financially since filing for Chapter 11 bankruptcy protection on Sept. 29.
Atalaya failed to do so, Delano said in a Tuesday afternoon ruling in Tampa. It wasn't fair to compare Eason's management with that of large national media companies, as the hedge fund's witnesses attempted to do during 21/2 days of testimony.
"You can't value a mom-and-pop grocery store by comparing it to Publix," Delano said.
Eason and Atalaya will likely enter into mediation to try to resolve their differences. As the largest creditor, Atalaya could upset Eason's plans to get out of bankruptcy with his business intact.
Eason said the six-paper chain is profitable when you exclude his debt payments to Atalaya. Loafing borrowed the money to finance the acquisition of the Washington City Paper and Chicago Reader. It also runs papers in Tampa, Sarasota, Atlanta and Charlotte, N.C.
Atalaya estimated that Loafing had shed $7.6 million in value since September and was now worth only $11.4 million. It requested the judge intervene to preserve its investment. Atalaya was also in the news recently after it bought assets of the defunct Bennigan's restaurant chain.
Eason countered by saying he was making necessary budget cuts to weather the rough economics for media companies reliant on advertising. His goal is to transform what's been mostly a print product into an online-based news company.
"I think we've done a nice job holding value," Eason said as he left the courtroom Tuesday. "We're not going to ditch this thing in the water."
James Thorner can be reached at email@example.com or (813) 226-3313.