LA Weekly Parent Company ‘Village Voice Media’ Declared In Default of their Loan*

And that’s just the start of their problems. A voluminous piece in the Seattle alt-weekly “The Stranger” examines the latest twists and potential consequences of the ongoing predatory-pricing lawsuit between the San Francisco Bay Guardian and LA Weekly parent company New Times/Village Voice Media.

At one point, Stranger writer Eli Sanders calls Bay Guardian owner Bruce Bruggman and VVM honcho Mike Lacey “dinosaurs, fighting over the rotting bones of a soon-to-be-extinct animal.”

The details of the case are far too complex to sum up in a tidy blog post — worth reading the nearly 11,000 word piece in its entirety — but here are the basics:

After a six-week trial in 2008, a jury found that SF Weekly and its parent company had sold ads below cost, had done this with intent to harm the Bay Guardian, and had caused financial injury to the Bay Guardian in the process. The amount that jurors and the court decided SF Weekly’s parent company owed the struggling Bay Guardian: $16 million, payable immediately or subject to interest charges. SF Weekly and its parent company have appealed the decision.

So much is riding on the outcome of this war–including more than $21 million (those interest charges add up quickly), the manner in which people are allowed to do business in the state of California, and the reputations of two of the alternative-newsweekly industry’s most stubborn personalities–that the winner is bound to profoundly wound the loser, possibly mortally.

If its parent company’s appeals are not successful, SF Weekly could end up shuttered, leaving San Francisco with one less editorial perspective and many fewer employed journalists. Its parent company–which under the leadership of Lacey and his majority co-owner, Jim Larkin, has become the largest alt-weekly chain in the United States, publisher of the Village Voice, the LA Weekly, the Seattle Weekly, and 11 other papers—could end up in bankruptcy; or be forced to sell off some of its papers to pay the multimillion-dollar judgment; or have its assets seized by its largest creditor, Bank of Montreal, to which it currently owes $80 million; or, in the worst-case scenario, all of the above. (Lacey wouldn’t comment for this story, but Andy Van De Voorde, VVM’s executive associate editor, agreed to be interviewed one day before this article went to press. He dismissed all of the above as “legally ludicrous doomsday scenarios.” An attorney for the Bay Guardian countered, “Those are all potential outcomes,” and noted that the Bank of Montreal actually just declared VVM in default on that $80 million loan.) If, on the other hand, the appeals on the SF Weekly’s behalf are successful, the Bay Guardian–which has no parent company to absorb its out-of-pocket legal expenses and has cast this as a fight for survival–could go out of business, ending a long and storied run by a San Francisco institution and, of course, sending a different batch of working journalists into the ranks of the unemployed.

Not sure how this whole thing is going to turn out, but, suffice it to say, the Bay Guardian’s lawyers seem to be feeling pretty confident about their chances for collecting on their judgment — which continues to grow by the day.

*Interesting update from Ted Redmond on the Bay Guardian’s blog, who suggests VVM has been struggling with its leveraged debt, and had to renegotiate their loan agreement with the Bank of Montreal this past summer after failing to make payments:

In an effort to block us from collecting that revenue, the Weekly filed a motion March 16 seeking a restraining order that would have stopped the Guardian from contacting Weekly advertisers. The court refused to issue the order — but as part of its application, VVM disclosed some rather dramatic facts.

Among the exhibits filed in court: A March 12 letter from the Bank of Montreal, which leads a banking syndicate that has helped VVM expand and advance its alternative newspaper empire. The letter, signed by Managing Director Thomas McGraw, states that because of the “recent economic downturn and the resulting financial difficulties,” VVM had been “unable to meet its amortization payments” and had been forced to renegotiate the loan in June, 2009. That new agreement had required that VVM send all of its profits — that is, “all revenue above its costs, plus a minimal operating cushion” — directly to the bank.

Photo: VVM’s Mike Lacey