The Minneapolis-based Star Tribune got approval Friday from a New York bankruptcy court to continue to pay its bills and keep publishing.

The paper still is making money, according to court filings, and had almost $27 million in cash at the end of 2008. So Minnesota's largest newspaper doesn't appear to be going out of business anytime soon.

Longer term, however, questions remain.

Even if the Star Tribune emerges from bankruptcy, who will own it? And how much will its employees have to give up to achieve the cost cuts its publisher says are needed?

The Star Tribune filed for Chapter 11 bankruptcy late Thursday, two years after New York-based Avista Capital Partners, a private-equity group, bought the paper for $530 million.

"With the significant deterioration in our revenue in 2008 and the challenging outlook for our industry for 2009, we simply could not wait any longer to take this step," publisher Chris Harte said in a release issued early Friday. "Our plan is to use the court-supervised process to reduce our costs, strengthen our balance sheet and create a financially viable business."

The paper's profits are down sharply. Court filings show that it had earnings of $31 million in 2008, before interest, taxes and debt payments. That was down from $59 million in 2007 and $115 million in 2004.

In its bankruptcy filing, the Star Tribune reported assets of about $493 million and debt of $661 million. The filings also show the Star Tribune had nearly $27 million in cash, cash equivalents and marketable investments on its balance sheet as of Dec. 31. The Star Tribune won't seek the debtor-in-possession financing sought by many companies under Chapter 11 status in order to pay bills, the company said.

But the newspaper missed its debt payments the last three quarters of 2008.

"They have been hoarding a lot of cash in this company," said Robert Picard, a Brookline, Mass.-based media economics and management expert. "That's why they didn't pay their debt. They're going to have to pay cash for a lot of things."

The bankruptcy court granted the paper approval to pay certain vendors — including those that supply the Star Tribune with newsprint and the folks that deliver the paper — what they were owed prior to the filing.

And the paper can continue to pay for services and supplies critical to its daily operation — including employee wages.

CUTS LIKELY

But it's wages that will be a key battleground in bankruptcy.

Though nearly two-thirds of the Star Tribune's employees are unionized, the power of those unions under Chapter 11 is diminished, said Anthony Sabino, a bankruptcy expert and law professor at St. John's University in New York.

The situation for employees probably will be similar to what Northwest Airlines' employees experienced as it moved through bankruptcy, Sabino said.

"The playbook hasn't changed," Sabino said. "There will be a reduction in force. They're going to fire people."

"One of the only ways you can deal with union contracts is in bankruptcy," said Mark Sheffert, chairman and CEO of Manchester Cos., a Minneapolis-based firm that specializes in helping companies restructure. "Union contracts get voided in bankruptcy. They start negotiating with the company in earnest all over again. Sometimes the unions get busted as a result of that. Usually they end up having to make concessions to keep people employed."

Compared to Northwest, which was losing an average $4 million a day at the time it filed for bankruptcy in 2005, and where some employees saw their pay cut 40 percent, the paper "may not have to have such dire and drastic pay cuts," Sabino said.

Avista has been asking the paper's unions for concessions since it bought the Star Tribune from McClatchy Co. nearly two years ago.

Cuts in news pages, dropping ancillary publications and significant work-force reductions have enabled the Star Tribune to save nearly $50 million a year, according to an affidavit by the paper's chief financial officer. Last summer, the union representing the paper's newsroom employees agreed to a three-year contract that saved Avista $2.4 million through pay freezes, buyouts and contract changes, the Newspaper Guild said in a press release Thursday. But other unions refused to agree to new contracts.

And when the paper's owners asked for $20 million in union concessions last fall, negotiations fell apart.

The way Avista financed its acquisition of the paper helped push it into bankruptcy, said Picard, the media expert.

"All newspapers, including the Star Tribune, are suffering from the current economic conditions," Picard said. "However, Avista managers made choices to finance their acquisition of the paper with a debt load and terms that put the paper into financial jeopardy if advertising targets weren't met. Those were their decisions and they bear the responsibility for the paper's inabilities to meet those debt obligations."

LIFE AFTER CHAPTER 11

It's not clear who will be in the driver's seat at a restructured Star Tribune.

"Given the kind of bankruptcy they are filing, Chapter 11, it doesn't necessarily mean they will go up for sale," Picard said.

But Sheffert, at Manchester Cos., isn't sure the Star Tribune can make it without another investor.

"It probably won't be enough to just restructure the debt," he said. "They will need some equity."

Sheffert suggests another media company, like Denver-based MediaNews, the owner of the St. Paul Pioneer Press, would be the most likely acquirer.

If MediaNews owner Dean Singleton were to make an offer for the Star Tribune, however, an antitrust investigation likely would ensue, Picard said.

"They first thing (the government) would look at is whether there are other potential buyers," Picard said. "If there are, they'd be more likely to say, 'No, we won't let Singleton buy it.' "

When asked if he was interested in buying the Star Tribune, Singleton replied, "I don't think there are any buyers for newspapers today."

In any case, what happens at the Star Tribune will have an impact beyond that paper.

"All newspapers and their employees are going to have to face (the) reality of a lower cost structure," Singleton said. "When it's time for us to sit down and look at contracts again we'll have to face that reality. ... To an extent, what happens at the Star Tribune on the cost side will (have) an influence on where we end up long-term in costs, although I can say from experience that the unions at the Pioneer Press have been very realistic and cooperative and understanding of the problems we face."

Nicole Garrison-Sprenger can be reached at 651-228-5580 or ngarrisonsprenger@ pioneerpress.com. John Welbes can be reached at 651-228-2175 or jwelbes@pioneerpress.com.