Philadelphia newspapers’ reorganization plan is approved by judge

Sixteen months after the parent company of The Inquirer filed for bankruptcy, a federal judge Monday confirmed its reorganization plan, the next-to-last step toward the emergence of a new and, it is hoped, more successful company.

All that stands in the way of a completed deal are the ongoing negotiations with the company's 14 unions.

After three days of testimony, Chief Bankruptcy Judge Stephen Raslavich approved the Philadelphia Newspapers L.L.C. reorganization plan over the objections of four pension funds that represent company employees. The funds objected to the plan's failure to require the new owners to take responsibility for pension-fund shortfalls.

Raslavich concluded that the plan was fair to creditors and offered the best hope for the company, which owns The Inquirer, the Philadelphia Daily News, and Philly.com.

Under the plan, the company will be turned over to a new entity, Philadelphia Media Network Inc., which is owned by 16 financial institutions that were among Philadelphia Newspapers' largest creditors.

Once the company's new owners reach agreements with the unions, a formal closing date for the sale can be set. Fred S. Hodara, lead attorney for the new owners, estimated that closing could occur between Aug. 2 and 31. He said contract talks were proceeding apace and should not threaten closing.

The new owners bought the company at auction in April for $139 million. Under the reorganization plan, about $105 million would go to settle about $318 million in secured debt.

The new owners will take control of the company with no liability for the pension plans that now exist for employees. That provision drew sharp objections from the four funds. According to testimony, there are at least $174 million in shortfalls in those funds, meaning employees face reduced or truncated pensions at some point if the new owners do not take responsibility for securing additional funding.

Gabriel Zinni, administrator for the Newspaper Guild's pension fund, testified that projections showed the fund depleted in 20 years if there are no further employer contributions.

Mark Thomas, a lawyer for Philadelphia Newspapers, told Raslavich that the sale of the company was dependent on the next owner being able to take control without what could be a $174 million liability. Hodara said the new purchasers would not go to closing if they faced the pension liabilities.

Raslavich, in ruling against the pension funds, agreed that burdening the new owners with pension liabilities would prove fatal to the reorganization plan.

John C. Kilgannon, who represented the Teamsters pension fund, said his clients intended to appeal the ruling to U.S. District Court.