Creative Loafing chain up for auction

By Jeffry Scott

The Atlanta Journal-Constitution

His family’s empire of alternative weekly newspapers headed to the auction block next week in a Tampa bankruptcy court, Creative Loafing CEO Ben Eason said Wednesday he’s confident his bid will prevail.

“I think we are absolutely the best bid,” Eason said in a telephone interview from Tampa, the headquarters of the struggling six-newspaper chain that was founded in Atlanta 37 years ago by his mother, Deborah Eason, who sold her interest to her son and a group of investors in 2000.

“Any bid has got to have cash, management and know-how, and be in a position to run the business and pay off debt,” said Eason. “We have all of that.”

But a partner in the only other known bidder, New York-based Atalaya Capital Management LP, which Creative Loafing owes $30 million, said Wednesday he was confident Atalaya would get a judge’s nod and soon run the company.

“We are going to come into court with a bid we believe will prevail,” said managing partner Michael Bogdan. “And if somebody starts with higher bid, we are absolutely willing to raise our bid.”

It’s a showdown over ownership that began last September when Creative Loafing filed for bankruptcy, claiming it couldn’t make interest payments on $40 million in loans it took out in 2007 (it borrowed an additional $10 million from BIA Financing) to buy the Chicago Reader and Washington City Paper newspapers.

Former staffers said this week that Eason’s decision to buy those alternative papers to expand the national reach of CL and make it more appealing to advertisers was ill-conceived and ill-timed.

“The numbers were heading south so fast that only an insane person would have concluded that you could make that transaction work,” said John Sugg, a former columnist and writer for Creative Loafing and shareholder, who estimates he will lose his entire investment — about $100,000 — when it exits bankruptcy.

“I think the decision to buy the Chicago Reader and Washington City Paper was a reckless decision and incredibly poor management,” said Sugg, who once was one of Eason’s most stalwart supporters.

Eason responded Wednesday that “a lot of people are saying now you should have seen the signs that are perfectly evident in the rearview mirror now. But the bottom line is Atalaya, plus the family, all thought the price was appropriate. A whole bunch of people said this was a fair deal for all. It wasn’t just me running over a cliff.”

According to documents filed in the case, Creative Loafing publishes six weekly newspapers — in Atlanta; Tampa; Chicago; Washington, D.C.; Charlotte and Sarasota, Fla. — with a combined a weekly circulation of more than 400,000, and runs seven Web sites.

Since the bankruptcy filing, however, editorial and advertising staffs have been trimmed to cut costs, leading to a heated showdown last November between Eason and long-time Creative Loafing editor Ken Edelstein when Edelstein challenged Eason to make cuts in upper management as well.

Edelstein, who was fired on the spot and has never been replaced, said this week that Eason had acted in an uncharacteristic burst of anger, but he’d always been difficult to work for.

“Eason’s management style involves a lot of switching gears and going in one direction, and then switching gears again and going in another direction,” said the former editor.

Eason said this week he believes he has the general support of the estimated 230 employees who work for Creative Loafing in his bid to keep control and run the company after bankruptcy reorganization.

“I think we can make money and pay off the debt,” he said, adding that, “unless there is an economic downturn” his scheme to make Creative Loafing profitable again “does not involve making further cuts in the staff.”

Bogdan, without tipping the particulars of his bid, said Atalaya has “zero intention of laying anybody off,” if it wins. “We are going to provide the resources necessary in both capital and personnel to make this newspaper operate profitably,” he said.

Edelstein said that, after 37 years, the newspaper’s greater hope may be in making a break with its founding family, but that too could be a short-term fix.

“I think as a best-case scenario the investment fund is going to take control and infuse money and resources into making it into something they can sell for a profit,” said Edelstein.

Deborah Eason, who still owns shares in the company, said Wednesday she is mostly just an observer, though she plans to be in the Tampa courtroom next week at the auction.

“There’s not a whole lot I can do,” she said. “I’m just keeping my fingers crossed. What do they say? Prepare for the worst and hope for the best.”