Philadelphia Newspapers L.L.C. is thinking only of maximizing the return to its lenders when it seeks to keep those same lenders from bidding the debt they are owed in a coming auction for the company, a lawyer for the media firm argued in federal court yesterday.

Lawyers for the lenders countered that the company's real motive was to keep its current management team in place and benefit past investors at the expense of the creditors.

The contrasting positions were spelled out in arguments before U.S. District Judge Eduardo C. Robreno, who is hearing the company's appeal of a bankruptcy-court ruling that gave the creditors the right to bid their credit at the scheduled Nov. 18 auction of the company, which owns The Inquirer, the Philadelphia Daily News, and Philly.com.

The auction is a central element of the company's reorganization plan, which would give the senior lenders $37 million in cash and the company's Broad Street headquarters, said to be valued at $29.5 million, to settle about $300 million in debt.

The lenders recently rejected a subsequent offer that added a $20 million note to the total, payable over five years.

The auction is designed to determine if the company's offer represents a fair deal for its lenders.

Lawrence G. McMichael, the lawyer for Philadelphia Newspapers, said if the senior lenders were allowed to bid their debt it would create a disincentive for other potential bidders. And that would undermine the goal of the auction, which is to raise as much cash as possible for the lenders.

Rather, the creditors should be required to bid in cash like all other bidders, he said.

Avid Qureshi, who represented the secured lenders at the hearing, challenged the logic of McMichael's argument, suggesting it made no sense that creditors would bid more for the company than they thought it was worth.

Instead, he argued, the company was trying to make it more difficult for the creditors so the current management team, led by chief executive officer Brian P. Tierney, can retain control.

The senior lenders have said they want to bid for the company at auction. At a previous court hearing, Qureshi said some senior lenders had used investment vehicles that would bar them from putting more cash into the property. As a result, they would not be able to bid cash.

David F. Abernethy, who represented Citizens Bank, the agent for the senior lenders, also questioned the company's motivations.

He noted that all the funds raised at the auction go to the lenders anyway. How then does allowing them to credit bid do anyone a disservice? It only does, he suggested, if the company's real motive was to protect its own interests.

McMichael cautioned Robreno not to focus on either side's motivation, but rather on the question of law. He argued that by his reading of the bankruptcy statutes, the company was well within its rights to bar the lenders from credit bidding. Qureshi offered a counterview.

The court session was the result of the company's appeal of a decision by Chief Bankruptcy Judge Stephen Raslavich, who had ruled the senior lenders could credit bid.

After hearing the arguments, Robreno closed the session without making a ruling or indicating when one might come. Bids on the company are due Nov. 16 and the auction will follow two days later.

Contact staff writer Christopher K. Hepp at 215-854-2208 or chepp@phillynews.com.