US Trustee objects to proposed loan to Alaska Dispatch News
A new monkey wrench was tossed into plans for the Alaska Dispatch News to keep operating through a loan and purchase agreement with the potential buyers.
U.S. Trustee Gail Geiger responding to the U.S. Bankruptcy Court for the District of Alaska, outlined objections to the proposed $1 million deal in a trustee’s Aug. 16 response to ADN owner Alice Rogoff’s debtor motion.
Most parties haven’t been given notice of the first motions filed this week, Geiger objected on behalf of those owed money by Rogoff and the Dispatch.
U.S. Trustees are Justice Department officials with broad administrative, regulatory and litigation or enforcement authorities and act as a neutral party to bankruptcy proceedings. Their mission is to work in such cases for the benefit of all stakeholders – debtors, creditors and the public.
Geiger told the court in her filing that she will advocate “that the Court grant interim relief only to the extent necessary to avoid irreparable harm between now and the time that a final hearing, on notice to all parties in interest, can be conducted.”
In Rogoff’s motion to the U.S. Bankruptcy Court filed Aug. 15, she seeks approval for a debtor-in-possession, or DIP, loan of $1 million with the Binkley Company, made up of four Binkley siblings and Jason Evans, as well as to spend some of that money to pay her newspaper carriers and her past due employee health insurance premiums.
Judge Gary Spraker granted an expedited hearing to rule on the motion for the DIP loan and use of funds to fund operations and premiums at 2 p.m. Aug. 17 at the Old U.S. Federal Court Building.
Binkley Co. and Rogoff are also entering into an asset purchase agreement with a sale price of $1 million, pending the judge’s approval, Geiger noted.
But the loan agreement and the sale motion are “intrinsically intertwined” because as the agreement for financing is contingent on the court’s approval of a super priority lien and cash collateral. Geiger questions whether this accords protection for Rogoff’s $10 million loan balance with Northrim Bank, a secured creditor, and more than 100 other unsecured creditors who are owed a combined total of $2.5 millon as well.
“As to the first, issue, the United States Trustee does not currently have a position insofar as it is unclear at this early stage in the case whether Northrim Bank consents to this priming lien and what, if any, adequate protection will be accorded Northrim Bank,” Geiger wrote. “It is worth noting however, that the Debtor’s petition reflects estimated assets of $10 to $50 million and liabilities of only $1 to $10 million, suggesting that the Debtor may be solvent and that Northrim may have an equity cushion sufficient to warrant a finding that they are adequately protected, however, and again, the United States Trustee reserves the right to review and object to any proposed adequate protection payments to the extent they are overreaching.”
Secondly, the trustee is concerned that Binkley’s ability to cut off funding at its “sole discretion may chill any potential parties wishing to investigate a potential purchase of the debtor’s assets.”
Of further concern to the trustee is the “insider” status of a new manager that Binkley appointed, namely Jerry Grilly, former ADN publisher. It’s fine to appoint a manager but now Binkley falls within the definition of insider and becomes subject to a higher level of scrutiny.
“Also worth noting is that the fact that parties in control of a debtor’s chapter 11 operations who undertake the role of debtors-in-possession owe the debtor’s creditors a fiduciary duty to maximize the value of assets.”
That’s at odds with Binkley’s financial interests in obtaining assets at the cheapest price they can, she wrote.
Geiger posed an example: a potential buyer could begin negotiating with Rogoff’s landlord, GCI, the owner of the Northway Drive building where the press is housed. GCI filed to evict the Dispatch from the Northway property Aug. 11, a day before Rogoff filed for bankruptcy.
GCI could prefer to negotiate with the potential purchaser and then refuse to negotiate any further with Binkley, Geiger wrote.
“At that point, … Binkley could simply cease its DIP financing, leaving all parties without the ability to reorganize,” Geiger wrote.
Based on this possibility, Geiger is requesting that the loan agreement should prohibit Binkley from terminating financing or refusing to provide the funding.
She also is requesting that the court require Rogoff and Binkley to give evidence substantiating a “good faith, arms-length lending relationship.”
The trustee is also reserving the right to raise additional objections as the case proceeds through the courts.
Naomi Klouda can be reached at [email protected]