Judge Backs Philly Newspaper Creditors

PHILADELPHIA - Publisher Brian Tierney’s bid to keep control of the Philadelphia Inquirer and related properties took a huge blow Thursday after a judge ruled against current owners in bankruptcy court.

Tierney’s latest ownership group had tried to block senior creditors from using more than $300 million in debt to bid at an open auction for the Inquirer, the Philadelphia Daily News, Philly.com and other assets.

Link: Read Inquirer's Account Of Ruling

However, Chief U.S. Bankruptcy Judge Stephen Raslavich said senior creditors can proceed, using that debt as collateral at the auction in November.

Tierney put together a new investment group that made a bid in August for the bankrupt company valued at $92 million.

Tierney’s original group bought the media company in 2006 for $515 million, but declared bankruptcy in February.

The senior creditors have repeatedly said they want Tierney out of the business. They would replace Tierney with a management team that includes former Inquirer publisher Bob Hall.

"We very much want these newspapers to survive and thrive," lawyer Andy Kassner, who represents Citizens Bank, the agent for the senior lenders, told The Associated Press late Thursday. "The agent will be consulting with the lending group, and its advisers, on how to proceed in the auction, and what position to take in connection with bids."

The senior creditors include the Royal Bank of Scotland Group PLC, CIT Group Inc. and Angelo, Gordon & Co. The auction date has not yet been scheduled but is expected next month.

In his ruling, Judge Raslavich agreed the auction rules proposed by the Tierney group looked like "a not-so-thinly veiled attempt to manipulate the sale process."

"All eyes are now on Citizens Bank, the agent (for senior creditors). Who will they support?" the current owners said in a statement. "We will continue fighting for our newspapers and for our employees."

The only hope for Tierney’s latest group is a dispute among the senior creditors that would block a majority of them from approving an auction bid.

Tierney led a local-ownership publicity blitz that decried the possible takeover by creditors. Judge Raslavich allowed that campaign to continue.

"We know how terrible it will be for these papers, our employees, and our community if these out-of-town hedge funds take over," the statement read. "In contrast, the community-based investors want to protect and nurture these treasures for the long haul."

The key player will be Angelo, Gordon & Co., an investment firm that has also bought the debts of the Star Tribune of Minneapolis and the Chicago Tribune.

Angelo Gordon took over the Star Tribune last month. It is expected to aggressively cut costs and look at charging for online content.

The dispute between the local owners and their lenders has been bitter, with everything from accusations of illegal taping of a pre-bankruptcy meeting to complaints about the company's recent "Keep It Local!" publicity blitz, which creditors say demonizes them through fears of slashed news operations.

Philadelphia Newspapers filed for Chapter 11 bankruptcy protection in February 2009 in an effort to restructure its $390 million debt load.

Whatever group gains control of the media company will need to pump cash into the business to keep it going as a viable entity.

According to financial statements obtained by MyFoxPhilly.com that current owners filed with the court, Philadelphia Newspapers LLC lost $5.3 million, on $26.3 million of revenue in July 2009, and $4.1 million, on $22.5 million of revenue in August 2009.

The company's cash flow stood at $11.6 million on August 30, down from $19.4 million in late June.