Local investors bid $92M to keep newspapers

By Christopher K. Hepp

Inquirer Staff Writer

To exit bankruptcy, Philadelphia Newspapers L.L.C. yesterday presented a $92 million plan that would use cash and property to clear about $300 million in secured debt.

The plan, which was filed with U.S. Bankruptcy Court, would provide $66.6 million for creditors and $25 million to cover bankruptcy costs, including professional fees and short-term financing.

The $66.6 million includes $35 million in new investment and ownership of the company's headquarters building at 400 N. Broad St.

The plan, which still requires court approval, also calls for the media firm, which owns The Inquirer, the Philadelphia Daily News, and Philly.com, to be put up for bid to determine whether the company's proposal is the best deal for creditors.

If a bidder comes forward and offers a better proposal for creditors, the company could be sold.

The plan, then, represents a gamble by the current management that its offer to creditors exceeds the present market value of the company.

It also defines even more starkly the battle between Brian P. Tierney, the company's chief executive officer, and his local investors and Philadelphia Newspapers' largest debt-holders, firms such as Angelo, Gordon & Co. and CIT Group Inc., which have outlined a plan in which they would take over the company and install new leadership.

The company's reorganization plan calls for the present leadership to be retained and Tierney to remain as CEO.

It almost certainly faces challenges from creditors before it can be approved by a judge. According to the company's timeline, if all went its way, the plan could be approved by early November.

There was virtually no reaction from creditors last night.

Lawyers representing a number of the key senior lenders did not respond to messages for comment. Gary Schildhorn, a lawyer representing a committee of unsecured, or second-tier, creditors in the case, said the committee was glad the company had finally filed its plan. He offered no comment beyond that.

In a court filing last week, lawyers representing senior creditors were dismissive of outlines of what turned out to be the company's eventual plan, describing it as "nothing but a prelude to additional litigation" and designed to allow some of the original investors in the paper to "salvage value from their investment."

The new owners, under the plan, would be a three-member group led by Bruce Toll, vice chairman of Toll Bros. Inc. He was one of the original investors who bought the company in 2006.

The group also includes the Carpenters Union pension fund and Penn Matrix Investments. According to the company, Penn Matrix Investments is owned solely by a wealthy Philadelphian who wanted to be anonymous for now.

The group has agreed to invest $35 million in Philadelphia Newspapers and provide letters of credit for $17 million, for a total of $52 million.

Toll originally invested between $20 million and $25 million in Philadelphia Newspapers. The Carpenters Union had previously invested $20 million. Those investments have been wiped out by the bankruptcy.

"I just think it is the right thing to do," Toll said of his decision to reinvest. "It is a great paper. Somebody had to stand up, so I did."

Tierney, in a letter to employees, called the company's proposal "a great plan, the right plan. It moves us out of bankruptcy with zero term debt."

That contrasts with a plan drafted by senior lenders that would give them control of the company with about $60 million in term debt. The company filed for bankruptcy in February, after falling behind in loan payments on its debt. In all, it owed about $300 million to its senior, secured lenders as well as about $85 million to unsecured creditors.

"This has really been an arduous process," Tierney said yesterday in an interview. "But the end result is worth it. We are the only newspaper company in America that has been able to get new equity. . . . It is also important that we get rid of that millstone of debt around our neck."

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

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