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Tuesday, November 10, 2009

State to fund loan to save ailing newspaper

Claremont – The state of New Hampshire last week agreed to guarantee 75 percent of a $250,000 loan from an Upper Valley bank to the new owner of the Eagle Times, an unusual deal because it involves a daily newspaper and the government it covers.

The Executive Council on Wednesday unanimously approved without debate the “working capital loan guarantee,” which would be administered by the New Hampshire Business Finance Authority.

Under the deal, the BFA and the state would be liable to pay up to $187,500 to Connecticut River Bank if Eagle Printing & Publishing LLC defaulted on the $250,000 line of credit it would receive from the bank.

Eagle Printing is the entity created by a small Pennsylvania-based newspaper chain which bought the Eagle and a handful of weekly papers out of bankruptcy in September.

The loan from the Charlestown-based bank, which has had ties to the Eagle’s previous owner and publisher, has not yet been finalized but is expected to close this week, according to Mike Donahue, a senior credit officer at the BFA.

“We were approached by the bank to provide a guarantee for a business they felt was going to have some success, and hire back some jobs that are critical to the area,” Donahue said in an interview Friday. “We agreed with the bank’s assessment, and we agreed to present it to the governor and council.”

The loan would include an initial interest rate of 4.99 percent for the first year, and then be adjusted monthly to equal the prime rate plus 1.25 percent, according to a BFA summary of the deal.

“The Loan proceeds are to be used by Eagle Printing & Publishing LLC to provide working capital support for its distributing operations,” the summary stated.

The loan itself is secured by business assets at the Eagle, including inventory and accounts receivable, and is also backed by “the unlimited personal guarantee of George Sample,” the managing member of the newly formed Eagle Printing & Publishing and the publisher of Sample News Group in Pennsylvania, according to the BFA document.

Sample, who met with Donahue last month, could not be reached for comment Friday.

Harry Hartman, the newly installed publisher of the Eagle Times, said in a brief initial telephone conversation that he was “not aware” of any state link to the line of credit, but then traded phone messages with a reporter and could not be reached for further comment Friday or Monday.

The Claremont-based newspaper had ceased publishing July 10, leaving 66 full-time workers and 29 part-timers, including the weeklies, out of work.

The Eagle, under its new ownership, resumed publishing Oct. 12, and has about 25 full-time workers, according to paperwork connected to the BFA deal.

Executive Councilor Ray Burton, whose district includes Grafton and Sullivan counties, said he was unaware of the loan guarantee until shortly before the meeting at the Statehouse last week, and said he supports the deal.

“I didn’t even know it was cooking. … This is a low amount. Usually these are up in the millions,” he said of BFA loan guarantees. That same day, the Executive Council also approved a BFA loan guarantee to a construction-equipment firm based in Concord.

Donahue said Eagle Printing met the requirements for the BFA program, including sufficient collateral, a certain number of jobs being created, and a credit analysis from the bank offering the loan.

The BFA working capital program can help guarantee loans as high as $2 million, he said.

But the fact that the state is backing a loan to a privately owned newspaper did attract some attention, and criticism.

“So which government officials helped broker the loan guarantee for the Eagle Times?,” wrote former Claremont City Councilor Jim Sullivan, who first reported the deal on his blog, The Sullivan Report. “Because the New Eagle Times is now beholden to government officials for what appears to be crucial financing, this could prove to be a conflict of interest for the newspaper.”

Lou Ureneck, the chairman of Boston University’s journalism department, said the state guarantee “raises an obvious red flag” even if the goals of the transaction – to help an employer resuscitate a small newspaper important to its community – might be understandable.

“It certainly creates the appearance and probably the reality of a conflict in the paper’s coverage of state government,” Ureneck said. “It’s a tough and complicated issue, but this one sounds problematic to me.”

The deal would differ from government funding that helps subsidize public radio, for example, because there are “all sorts of safeguards in place” to prevent undue influence there, said Ureneck, a former editor of The Portland Press Herald and Maine Sunday Telegram and deputy managing editor of The Philadelphia Inquirer.

The Eagle guarantee is “more troublesome,” he said, because it involves specific aid to what has been one struggling paper.

Donahue, who has worked at the BFA since it was created 17 years ago, said this was the first guarantee involving a New Hampshire newspaper that he could recall, but that there are “no restrictions that would preclude us from doing it.”

Gov. John Lynch, who presided over the Executive Council meeting, said in an interview after an appearance at Dartmouth College on Friday evening that he had no problems with the loan guarantee.

“It’s really more of a job development, economic development type of issue,” said Lynch who said he has not met Sample and was not involved in putting the deal together. “I think it was the right thing to do, and it came up through the appropriate channels.”

The Eagle Times ran a photograph and congratulatory letter from Lynch, welcoming the return of the newspaper, on the front page of its first post-bankruptcy edition on Oct. 12.

Burton, the executive councilor, also said he had no qualms about backing a loan guarantee to a private newspaper.

“Would I expect any deference when I walk into the door of the Eagle Times? Not at all,” he said. “I expect to be combed over, just like I’m being combed over right now.”

Patricia Putnam, a regional vice president of Connecticut River Bank based in Claremont, declined to comment on the pending loan, citing client confidentiality.

As recently as 2008, the chairman of Connecticut River Bancorp was Harvey Hill, who owned Eagle Publications when it filed for bankruptcy in July.

Hill is no longer on the bank’s board, according to its Web site. He planned to retain ownership of the Eagle’s River Road building, which was not part of bankruptcy proceedings, and lease it to Sample’s newly formed company, officials said in September.