Inky, DN owners file for bankruptcy

BLOOMBERG. The owner of the Philadelphia Inquirer and Philadelphia Daily News filed for bankruptcy with plans to cut its debt, the second newspaper company in two days to use court protection to try to survive an industry crisis.

Philadelphia Newspapers LLC listed assets and debt of as much as $500 million each in a Chapter 11 petition filed last night in U.S. Bankruptcy Court in Philadelphia. The filing comes after talks on a “revitalization plan” between the company and its lenders fell apart, according to court papers.

The lenders’ proposal from last year “was not capable of closing, and could not support a feasible, pre-arranged plan of reorganization,” Richard Thayer, the company’s executive vice president for finance, said in court papers.

Philadelphia Newspapers is at least the fourth publisher in since December to file for bankruptcy. The biggest case was filed by the Tribune Co., owner of the Los Angeles Times and the Chicago Tribune. Both companies sought bankruptcy protection after being bought by new owners using borrowed money.

The Journal Register Co., owner of 20 daily newspapers, sought protection Feb. 21 citing “slumping advertising revenues.”

Local Businessman

Philadelphia Newspapers was created in June 2006 when local businessman Brian Tierney led a group of investors who bought the newspapers from McClatchy Co. for $562 million. Tribune filed for bankruptcy on Dec. 8, less than a year after real- estate investor Sam Zell took it private using billions of dollars in debt, much of it not backed by any collateral.

“In a matter of weeks after Tierney’s group bought the papers, the advertising market collapsed,” Connie Langland, a former Inquirer reporter, said in a telephone interview late yesterday. “They’ve been carrying a huge burden ever since.”

Philadelphia Newspapers said it will focus on cutting the size of its almost $400 million in bank debt and notes.

The company agreed to borrow $25 million from Callowhill Partners LLC to help it keep operating while in bankruptcy. That loan agreement came after Philadelphia Newspapers rejected an offer from its current lending group, which offered a $20 million loan at a higher interest rate, according to court records.

Seven other units also sought protection including Philadelphia Media, PMH Acquisition, Philly Online and PMH Holdings.

Loan Defaults

The company defaulted on its loans in June. Senior lenders blocked an interest payment to other creditors that month, according to Standard & Poor’s, the credit-rating company.

Royal Bank of Scotland Group Plc was the agent for a $295 million term loan and $50 million in revolving credit that backed the purchase of the two newspapers, S&P said in June.

The 30 largest creditors without collateral backing their claims are owed $102.1 million, according to yesterday’s Chapter 11 filing. RBS is listed as the largest unsecured creditor, holding $22 million in subordinated notes, according to the filing.

The Inquirer, founded in 1829, is the U.S.’s third-oldest daily newspaper and has won 18 Pulitzer Prizes. The Daily News, a tabloid, was founded in 1925. The two have had a common owner since 1969, when they were bought by Knight Newspapers Inc. They were sold to rival McClatchy as the Knight Ridder newspaper chain dissolved in 2006.

No Newspaper Experience

Tierney and his partners, including Bruce Toll, co-founder of luxury homebuilder Toll Brothers Inc., had no experience running newspapers before they bought the publications in May 2006. Tierney, an advertising executive, said the purchase of the papers would return them “to a family of civic-minded, long-term investors.”

Five months after buying the publications, Tierney cited weak advertising revenue when eliminating 68 jobs, or 17 percent of the Inquirer’s editorial staff. The cuts came two weeks after unionized newsroom employees agreed to forgo a pay raise and give back $5 million in pension and sick-leave benefits.

The newspapers’ executives said in yesterday’s filing that the Chapter 11 filing was designed to reduce the company’s debt load and wasn’t aimed at restructuring “leases, contracts or operational agreements.”

The Philadelphia-based newspaper company plans to use cash in its coffers and bankruptcy loans to fund operations while it restructures, officials said in court papers.

‘Terrible Tragedy’

The bankruptcy filing was “a terrible tragedy for journalism, the Philadelphia area and for everyone who works at the papers,” Mark Wagenveld, a former Inquirer editor who left the newspaper during a 2006 buyout, said in a phone interview late yesterday.

Wagenveld said he hopes the newspapers “survive” the bankruptcy reorganization and return on a stable financial footing.

In January 2008, Tierney told employees costs had to be cut by 10 percent to avoid “a dire situation.” Union trustees sued the company in April, claiming the publisher sought to gain control of a union pension fund covering more than 2,000 current and former employees.

Other unsecured creditors include Airlie Opportunity Master, owed $15.1 million; Bru Holding Co., owed $11.6 million; MCG Capital Corp., owed $5.8 million; PNI Lender LP, owed $5.8 million; and Post Strategic Master Fund, owed $4.9 million, according to court papers.

Ad Sales Plunge

Industrywide print advertising sales endured their worst plunge in at least 37 years in last year’s third quarter, according to the Newspaper Association of America.

The Inquirer and the Daily News were among a dozen former Knight Ridder Inc. newspapers that Sacramento, California-based McClatchy sold after acquiring the chain in June 2006 for $4.1 billion. McClatchy kept 20 Knight Ridder newspapers, including the Miami Herald.

New York Times Co., McClatchy and Media General Inc. halted payment of their quarterly dividend this year in response to dwindling ad sales. Gannett Co. cut about 4,000 jobs in 2008 and, like other publishers, is seeking to sell assets.

“I have to think the papers are going to survive in some fashion. They are important institutions. You can’t have a democracy without newspapers,” Langland said.

Check back Tuesday for more on the Inquirer and Daily News' bankruptcy and a look at what it's like to work for a company going through bankruptcy.