Phila. Newspapers responds to filing; hearing delayed

In a court filing late this morning, Philadelphia Newspapers L.L.C. rejected last week's call by senior lenders for management changes that would give lenders more influence over operations during the company's Chapter 11 reorganization.

"The debtors will not abandon or cede control of this enterprise or these cases to the grossly undercollateralized prepetition lenders," Philadelphia Newspapers' lawyers argued in today's filing in U.S. Bankruptcy Court in Philadelphia.

A hearing scheduled for this afternoon in Bankruptcy Court in Philadelphia was delayed, before it started, by negotiations between the two sides. The hearing was scheduled to decide whether the publisher of The Inquirer, the Philadelphia Daily News, and Philly.com may continue using the company's cash to fund operations.

Both sides agree that Philadelphia Newspapers is worth more as an operating business than it would be in liquidation, according to court filings.

However, the company must be able to use the cash generated by the business to keep operating.

Therefore, the newspapers' lawyers argued in today's filing, the senior lenders "just want to use this opportunity to extract cash from the debtors and impose restraints on the debtors that give the prepetition senior lenders increased leverage in continued discussions over a plan" of reorganization.

The filing by Philadelphia Newspapers called the senior lenders' ire over a $350,000 bonus paid to chief executive Brian P. Tierney a "red herring," designed to capitalize on public outcry over bonuses at AIG and other companies funded by taxpayer money.

The filing said Tierney's bonus was paid out of a pre-established bonus pool of $1.5 million, of which $1.34 million was paid at the end of 2008 to 45 employees.

The filing also said the prepetition lenders had previously offered Tierney a management-incentive plan that would have paid him more to work for them and institute their plans.

In a filing Friday, the steering committee for secured lenders objected to the company's use of cash "to the extent these businesses continue to be managed solely by Tierney."