James C Tyree and a group of other local investors have entered into an agreement to purchase the Chicago Sun-Times and the 58 newspapers and other properties owned by the Sun-Times Media Group the newspaper holding company announced this afternoon. Tyree bid $5 million and agreed to assume $22 million in liabilities and an estimated $16 million in post petition assumed liabilities.

The chain is asking the US Bankruptcy Court for the District of Delaware approval to fast track the sale, with bids considered by the court on October 8, a court filing indicates. “Because the Debtor (Sun-Times Media Group) has been extensively marketed to date, first by Lazard (Feres & Co. LLC) and then by Rothschild(, Inc.), the Debtors believe the... schedule more than suffices to solicit competing offers and maximize value.”

The filing says 46 parties were identified as potential buyers, and 22 were given presentations. Although an unidentified number of the 22 parties expressed interest in purchasing some of the holding company, only one, led by Tyree, wanted to buy the entire company as an on-going concern.

“The sale... will require that the estate be administered for a period of time in chapter 11 to realize a full recovery for administrative creditors,” the filing says. It says a sale as an on-going company will benefit the 1,904 employees and the suppliers, vendors and customers of the company.

Most of the debt accumulated by the company is owed to the Internal Revenue Service. At $625 million it exceeds the total assets by a factor of nearly 2:1. Reports in other media indicate the company will be split in two, with the tax liabilities placed in a holding company that would be liquidated and the operating assets going to a new holding company. Under this plan, the IRS would be paid a small portion of its debt from the sale proceeds, but the new owner would be free from the potential tax liability.

Despite extracting 15 percent cuts from employees as part of bankruptcy and suspending some payments to pension funds, the company has continued to bleed cash, according to a court filing. The cash balance of the company fell $3.8 million in July, filings show. That includes $1.69 million in costs related to the bankruptcy for a negative operations cash flow of $2.115 million.

The company has continued to make cuts in operating expenses, recently shuttering a press and publishing two suburban newspapers in the tabloid format.

Although the current cash flow drain is an improvement compared to the $15 - $20 million per month in cash flow the company was bleeding before the bankruptcy, the company would face renewed demands to fund its suspended payments once bankruptcy ended. In addition the agreements with labor unions that extracted some benefits would expire with the sale. Tyree has indicated he is interested in investing in the company, but experts told Crain's Chicago Business that Tyree will need to invest tens of millions to turn the company around. He is expected to call on labor unions to continue the 15 percent cuts.

The Tyree bid is technically a stalking horse bid. Others interested in bidding for the company can compete against Tyree.