Philadelphia Newspapers LLC, publisher of the Daily News and the Inquirer, and owner of philly.com, announced today that it is voluntarily restructuring its debt under Chapter 11 of the U.S. Bankruptcy Code.
The case was filed yesterday in U.S. Bankruptcy Court for the Eastern District of Pennsylvania, in Philadelphia, by attorney Lawrence G. McMichael, of Dilworth Paxson LLP.
The company emphasized that it would continue normal operations of its newspapers, magazines and online businesses without interruption during the debt-restructuring process.
“Philadelphia Newspapers’ goal is to bring its debt in line with the realities of the current economic and business conditions,” said Brian Tierney, chief executive officer.
“Over the last two years, we have made significant progress in improving the quality of our journalism, building a relationship based on mutual trust and respect with our unions, making our operations among the most efficient in the industry and innovatively serving our readers and advertisers.
"This restructuring is focused solely on our debt, not our operations. Our operations are sound and profitable. We are the medium of choice in this region for advertisers and readers.
“Over 2 million people either pick up one of our newspapers or view our news and information online every day.”
The Newspaper Guild of Greater Philadelphia, which represents newsroom employees at both newspapers, told its members in an e-mail last night to “please stay calm. The company is still in business, the papers are still publishing and you should still report for work.”
The union’s executive committee will hold an emergency board meeting at 10 a.m. today, the e-mail said.
The announcement by Philadelphia Newspapers comes in the wake of a filing Saturday in U.S. Bankruptcy Court in New York of Chapter 11 protection by the Yardley-based Journal Register Co., which publishes the Delaware County Daily Times and the Trentonian, among other newspapers.
In addition, the Chicago-based Tribune Co. sought bankruptcy protection in December, and the Star Tribune of Minneapolis followed suit last month.
A group of investors led by Tierney bought the company, formerly Philadelphia Newspapers Inc., for $562 million in June 2006.
In an e-mail late last night to all employees of Philadelphia Newspapers, Tierney wrote:
“As a company, we have been hit with a perfect storm, including a dramatic decline in total revenue, the worst economic conditions since the Great Depression and a debt structure which is out of line with current economic reality. Despite these difficult circumstances, we have been working towards an operational structure that can flourish once we get the debt restructured.”
Tierney, who was a successful advertising executive before taking over the newspapers, wrote:
“The most important fact that you need to know about how the Chapter 11 filing affects you is that business will continue as usual. PNL will continue to operate under its current name and logo, and all operations as you know them will remain the same. We have asked the court to permit all salary and benefits, including pensions and 401(k) plans, to continue as usual. The filing has in no way changed your employment terms.”
The filing asks court approval of various customary motions, including the maintenance of employee payroll and health benefits, the fulfillment of certain pre-filing obligations, the ability to use cash on hand to meet expenses and the ability to honor customer programs.
The company pointed out in the court filing that it took this action after negotiating with its lenders for the past 11 months. During that time, the company has been billed more than $13.4 million in penalty interest by its senior lenders, led by Citizens Bank, and fees for its lenders’ lawyers and consultants, including the Blackstone Group, Drinker Biddle and Akin Gump.
In conjunction with its filing, the company is seeking Bankruptcy Court approval of up to $25 million in debtor-in-possession (DIP) financing provided by various lenders through NewSpring Capital.
The DIP financing provides additional cash on top of the working capital generated by the business. The proposed DIP financing plus the cash flow from operations will ensure the company’s ability to satisfy customary obligations associated with its normal course of business, including employee wages and benefits in the ordinary course, and payment of post-petition obligations to vendors under existing terms, the company said.