Avista-backed Star Tribune collapses into bankruptcy

The company, which owns the Minneapolis Star Tribune newspaper, could not sustain its debt load as its experienced significant declines in sales amid the downturn of the US economy.

Avista Capital Partners-backed Star Tribune Co., which owns the Minneapolis Star Tribune newspaper, the 15th largest daily newspaper in the US, collapsed into bankruptcy today under a heavy debt load and dwindling sales endemic of the nation’s newspaper industry.

“The … businesses have been severely and adversely impacted by this precipitous drop in advertising revenues,” David Montgomery, Star Tribune’s chief financial officer, said in bankruptcy documents.

The company attempted to cut costs, including workforce reductions and management wage decreases, but the sinking US economy exacerbated cash-flow problems and the company started missing interest payments to preserve operating cash, Montgomery said.

The company said it has $493.2 million in assets and liabilities of $661.1 million.

Avista bought Star Tribune in March 2007 for $530 million from the McClatchy Company. At the time of the deal, the Star Tribune was the largest newspaper in the Twin Cities area of Minneapolis, with a daily circulation of 360,000.

“We are disappointed that this course of action was necessary, and that despite the best efforts of management and all of the employees, the company could not withstand the unprecedented market conditions and revenue declines that have affected the entire newspaper industry,” Avista said in a statement. “Avista is hopeful that Star Tribune will emerge in a better position to succeed in a challenging and evolving industry.”

The newspaper industry has been “crippled” by an “unprecedented and severe decline in advertising revenue”, Montgomery said. The decline overall has been accelerated by the sinking US economy, he added.

The Tribune Company, which publishes a host of daily newspapers in the US, including the Chicago Tribune and the Los Angeles Times, filed for bankruptcy protection in December after succumbing to its debt load. The company was bought by billionaire real estate investor Sam Zell in December 2007 in an $8 billion deal.

Avista spun out from DLJ Merchant Banking, the private equity arm of Credit Suisse First Boston, in September 2005. The firm has a large portfolio of media companies, including Thompson Publishing and InvestorPlace Media.