Rumors continue to fly around the blogosphere that The Seattle Times Co. is preparing to file for reorganization under Chap. 11 of the bankruptcy code. According to The Stranger’s Eli Sanders, a Times Co. spokeswoman says the company hasn’t rejected that option, but hasn’t done it either. And the Pacific Northwest Newspaper Guild, which represents 420 editorial and support workers at The Seattle Times, has told its members it is preparing for such an eventuality.
But before anyone padlocks the doors at the Times Co.’s Fairview headquarters, consider this: Chapter 11 offers “protection” from a company’s creditors, but it also has to cope with how to pay off the debt — not so easy during a credit freeze. “You still need to find people to pony up the cash to help you reorganize,” says Sean O’Connor, the director of the Entrepreneurial Law Clinic at the University of Washington law school. In the case of the Times Co., says O’Connor, that could be tough sell, “knowing you might be throwing good money after bad.”
What else can the Times Co. do? One suggestion has been to create a new nonprofit entity to operate the Times newspaper divisions while keeping the good stuff — such as the ten acres of valuable downtown real estate the Times Co. owns — in the hands of the Times owners, the Blethen family and California-based McClatchy Co. But that’s also got problems. The new financing agreement that Times Co. President Carolyn Kelly signed in December on the five acres of real estate in front of the newspaper’s Fairview Avenue headquarters prohibits the company from any effort to “sell, convey, alienate, assign, lease, sublease, license, mortgage, pledge, encumber, or otherwise transfer” its property, or engage in “any common, cooperative, joint, time-sharing or other congregate ownership.”
Besides, notes O’Connor, while anyone can create a nonprofit, only the IRS can give it tax-exempt status, which would enable donors to get a tax break for pumping cash into the struggling Seattle Times. The IRS generally frowns on granting tax-exempt status to a nonprofit set up to get rid of debt. “That,” says O’Connor, “is going to be a losing argument with the IRS.”
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