• by Erik Sass , June 19, 2009

Two of the Midwest's biggest newspapers, struggling to stabilize their finances, are implementing further cutbacks including wage cuts and unpaid furloughs. The reductions at The Plain Dealer in Cleveland and the Star Tribune in Minneapolis are part of an industry-wide retrenchment as publishers confront plummeting ad revenues and a credit crunch.

At The Plain Dealer, owned by Advance Publications, 500 union workers belonging to the Northeast Ohio Newspaper Guild Local 1 and Teamsters Local 473 agreed on Thursday to take a total wage reduction of 12%, which includes an 8% reduction in actual pay and 11 days of unpaid furlough.

This is the second round of pay cuts and unpaid furloughs at the paper; the first round, including a 10-day unpaid furlough, hit non-unionized employees in March.

Separately, the Star Tribune of Minneapolis submitted a Chapter 11 bankruptcy reorganization plan to the U.S. bankruptcy court for the Southern district of New York last week. If the plan is approved, the paper could exit Chapter 11 bankruptcy protection as early as this fall.

To lay the groundwork for the plan, the Star Tribune's management has extracted critical concessions scaling back wages, benefits and employment guarantees from most of the Tribune's unions, yielding about $20 million in cost savings.

It has also required negotiations with a number of lenders, with top priority given to secured creditors. As part of the plan, publisher Chris Harte said "previously issued equity will be canceled and will not result in any recovery to the owners." He added, "The Plan also provides for the reorganized company to emerge from bankruptcy as a privately held enterprise."

A vote for approval of the plan by various creditors will be held in July, and confirmation of the plan may come in September, allowing the paper to exit bankruptcy shortly thereafter.

As part of the reorganization, private equity investors Avista Capital Partners will lose their ownership stake in the company, as creditors assume control of the company. This represents an embarrassing setback for Avista, which bought the Star Tribune for about $530 million in 2007. After its bankruptcy reorganization, the paper, with all its assets, will be worth about $120 million to $140 million.