Most of Denver, it seems, has a specific scenario in mind for the fate of the Rocky Mountain News: Once E.W. Scripps announced Dec. 4 it would try to sell the paper, the Rocky would fold as soon as possible.

Make no mistake, the imminent demise of the Rocky is the likely scenario. Yet there still are plenty of questions about what's happening now, and what will happen next.

Answers are not forthcoming from any of the parties. Cincinnati-based Scripps is offering little comment, and MediaNews, the owner of The Denver Post, has grown silent. The Denver Newspaper Agency remains unwilling to discuss its challenges.

We do know this: MediaNews CEO Dean Singleton has asked unions representing workers at The Post and the agency to reopen their contracts so they can grant cost-saving concessions. The reason cited by Singleton, the Rocky has reported, is a need to renegotiate the agency's bank loan of roughly $130 million, used to update and consolidate the newspapers' production operations.

At first blush, it seemed odd: The agency has a favorable interest rate and need not repay the balance of the loan until October 2010. Why renegotiate?

The answer may come in the agency's performance. Scripps said in December it had received only $5 million in profit distributions from the agency all year - well short of the $20 million-plus needed to make payroll for the Rocky newsroom.

Most commercial lenders require their borrowers to maintain a certain level of earnings in relation to their debt. If the agency couldn't distribute enough profits in 2008 to cover the Rocky's newsroom costs, it seems likely to have broken the earnings promise it made to its lenders.

The agency may not have reached the point where it agrees that it's formally noncompliant. Even so, the bankers may have stepped in and reached the subjective conclusion that deterioration in the Denver newspaper business required the loan renegotiation. (Representatives of the Denver Newspaper Guild told its members Monday night that the agency told union leaders the banks have declared a violation of the loan terms. The agency, according to the union, denies it.)

It's important to note that the agency's debt is "non-recourse" to Scripps and Media- News, meaning the banks can't pursue the two companies' assets if the loan goes bad.

However, a violation by the agency may have an impact on other credit agreements at Scripps and the highly leveraged Media- News. Commercial lenders often have corporations sign "cross-default" agreements in which they agree that if a subsidiary or joint venture goes into default, it sends their other loans into default as well.

This leads to the key question: What will benefit Scripps more? Helping MediaNews craft a plan for a one-newspaper Denver by quickly agreeing to shut the Rocky? Or letting the bankers' pressure on the agency, and by extension, MediaNews, increase?

All this assumes Scripps will find no buyer for the Rocky - probable, but not certain.

Understand that no one will have to pay anything for the paper. In the current setup, with the Rocky and The Post splitting agency profits before paying for their newsrooms, both papers are now losing millions of dollars a year. As part of their joint operating agreement, both papers are worse than worthless, since there's negative value to an unending stream of future losses.

Any winning "bidder" will be the one who takes on the most obligations from Scripps, including some portion of the agency debt and a piece of the unfunded agency pension liability.

Are there bidders? Scripps let the Jan. 16 deadline pass without comment. It wouldn't be surprising if the economics deterred anyone from submitting a formal offer. On the other hand, Scripps says it sent out information to several parties willing to kick the tires. One or more may see value in the Rocky brand and try to come up with a plan for a vastly different business model, one that likely doesn't include a 50-50 partnership with Singleton and MediaNews.

Or, an interested party may skip the Scripps bidding process and start talking to the agency's lenders about the best way to get value out of the bad loan and the Denver newspaper business.

The additional complication is language in the original JOA between The Post and the Rocky that gives MediaNews a right of first refusal on the sale of the Rocky. Singleton made clear on Dec. 4 that MediaNews, if necessary, would acquire and close the Rocky.

(What does the federal Justice Department, which blessed the two papers' JOA in 2000, think about that? Hard to say, but the federal JOA law hasn't kept papers from folding even when they were still profitable. Who will argue that the feds will force millions of losses on the Denver owners in the name of preserving the competing editorial voices?)

Financially, MediaNews is not operating from a position of strength. It has already renegotiated its loans twice in this downturn, selling off assets and accepting higher interest rates to keep the bankers at bay.

That's why many employees of the Rocky shrugged off the "failing newspaper" label it used to achieve its 2001 JOA and hoped Scripps would outlast MediaNews, stepping in as the winner in Denver.

It has increasingly become clear, however, that Scripps not only sees no value in operating one of two newspapers in Denver, it sees little or no value in operating the only newspaper in Denver. The "prize" isn't worth one more quarter of losses in Scripps' eyes.

Singleton believes most of the industry's current revenue problems are cyclical, and most of that revenue will return. He has to hope so: At current Denver newspaper revenue levels, there isn't enough money to support one newsroom. The two papers will have lost more than $30 million in 2008, and eliminating the Rocky newsroom only saves $22 million. If revenue declines continue in 2009, the situation gets worse.

Perhaps The Post can hang on to a significant number of Rocky subscribers if the paper closes, revenue will improve, and MediaNews will have more than a pyrrhic victory.

I don't think so. I will make two predictions, which may be my last in this column. One is that 18 months after the Rocky closes, The Post will have retained very few of the Rocky's subscribers, loyal to the tabloid format.

And two: Once we stop speculating when Denver will become a one-newspaper town, we will begin to ask when the Post will close as well.

David Milstead and James Paton take turns writing Up and Down 17th Street.

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