Financial problems at the Seattle Times Co. and its Blethen Maine Newspapers subsidiary are so severe that if the cash-strapped company cannot soon sell the Maine division, it might have to shut it down, leaving that state’s largest city and two smaller ones, including the state capital, without daily newspapers.

That bleak assessment is by Charles Cochrane, Blethen Maine’s chief executive, in a nine-page affidavit filed July 29 in U.S. District Court in Portland, Maine. Cochrane’s affidavit and other documents are part of a lawsuit filed by the Seattle Times Co. against the Portland Newspaper Guild.

On July 30, Blethen Maine Newspapers announced a letter of intent had been signed to negotiate the sale of the chain to Maine Media Investments, a syndicate of prospective buyers that includes former U.S. senator and Defense Secretary William Cohen. In a statement announcing the letter of intent, Seattle Times Co. Chief Executive Frank Blethen predicted a sale would result in a “seamless and timely” ownership transition for the Maine chain to the locally based group. An Aug. 1 headline in the Portland Press Herald, the chain’s flagship, proclaims: “Potential buyers say the Portland Press Herald/Maine Sunday Telegram have a healthy future.”

But Cochrane’s affidavit characterizes a potential sale to Maine Media Investments as “highly uncertain.” And his and other documents paint a grim picture of the financial situation at the Maine papers and their Seattle corporate parent:

• Both the Seattle Times Co. and the Blethen Maine subsidiary are losing money at an accelerating rate, with losses likely at both units this year and the prospect of a Seattle Times Co. default on loans growing.

• Cash flow at Blethen Maine Newspapers plummeted more than 88 percent during the first six months of this year over a similar period in 2007. The chain’s advertising revenue during that period fell 19 percent, and overall revenue was down 12 percent.

• Finances at both the Maine chain and the corporate parent are so dismal that the Seattle Times Co. might have to start pulling capital out of the Maine operation to cover the parent company’s mounting legal costs from the fight with the Portland Newspaper Guild.

Cochrane’s affidavit calls the potential sale of the chain uncertain because it requires the Portland Newspaper Guild to agree to renegotiate a labor contract with the prospective buyer. The union and the Seattle Times Co. disagree on the meaning of the contract with regard to continuation of the agreement under new ownership – hence the lawsuit.

If the Seattle Times Co. cannot keep the sale process moving rapidly forward, Cochrane’s affidavit says, the value of the chain’s assets will drop “precipitously,” reaching a point where the Times Co.’s lenders won’t approve any sale and instead could foreclose and seize the chain’s assets.

“If the lenders choose to foreclose on (Blethen Maine) then a large percentage of (the chain’s) work force would likely be laid off,” or the chain might be shut down altogether, Cochrane said.

Besides the Portland Press Herald and Sunday Maine Telegram, the Seattle Times Co. owns the Kennebec Journal in state capital of Augusta, the Morning Sentinel in Waterville, and MaineToday.com.

Blethen Maine is preparing a fourth round of layoffs at the Press Herald later this month. But Cochrane’s affidavit warns that if the sale of the chain does not go through, things could get even worse.

“Without a sale,” Cochrane said, “it is even possible that BMN would be dismantled altogether, which would put all of BMN’s employees – including the Union’s members – out of work.”

Guild President Tom Bell told The Associated Press that Blethen Maine never told the union that the newspapers could be shut down. “We think these are scare tactics,” he said, suggesting that Cochrane’s worst-case scenario was hypothetical.

In an interview with The AP, Cochrane denied that he was engaging in scare tactics and said a shutdown is neither imminent nor even probable, as some media reports suggest.

“It does lay out an extreme case of what could happen if eventually a sale were not made. But certainly there is not any indication in this filing nor is it accurate that the newspaper’s going to be closed down next week or next month,” Cochrane said.

Bell told The AP the ownership link between the Maine newspapers and the Seattle parent is such that one cannot be easily severed from the other.

Cochrane in his filing said the Maine chain is using all its cash “just to keep the operation running.” The chain, he said, does not have enough revenue to pay down the Seattle Times Co.’s bank debt. The Times Co. does not disclose its finances. It is privately owned, with 50.5 percent of the company’s voting shares held by the Seattle-area Blethen family and the remainder owned by publicly traded McClatchy.

In 1998, the Seattle Times Co. borrowed $230 million from a syndicate of banks to buy the papers in Maine, where the Blethen family has ancestral roots. The Times Co. has not disclosed how much it still owes the banks.

Times officials did not respond to Crosscut’s request for comment on the Maine court filings.

Bill Richards is a former Wall Street Journal and Washington Post reporter who covered the Seattle newspapers’ joint operating agreement for The Seattle Times under a three-year contract that ended in 2005. This article was reprinted with permission of Crosscut.com.