A fierce fight over the ownership of the Philadelphia Newspapers company, owner of the Inquirer and the Daily News, is raging in bankruptcy court. The company filed chapter 11 in 2009, one of a nationwide spate of highly leveraged newspaper acquisitions to have come crashing down. Altogether, there have been 13 major newspaper industry bankruptcies post-recession, including the Minneapolis Star Tribune and the Chicago Tribune, which are now owned by creditors.
Ownership by the company’s lenders is exactly what Brian Tierney, who purchased the Philadelphia Newspapers in 2006, is struggling to avoid. So far, he has succeeded. In what the New York Times characterizes as an “improbable” development, a federal appeals court recently disallowed a “credit bid” — which would use the debt owed — by the lenders. Thereafter, trying to buy time to prepare an appeal, the debtholders failed to delay the auction planned for later this month. Tierney is pursuing a novel argument: keeping the papers out of the hands of the creditors is a “civic good.” Tiereny contends, “I have a fiduciary duty, not just to the lenders, but to the employees and other people who depend on this paper.” He is working to put together a stalking horse bid on behalf of “local interests” and/or attempting to convince a “media-savvy” company to step in with an offer.
The bankruptcy bar is in an uproar over how the case is developing. The lead lawyer for Philadelphia Newspapers’ senior lenders, Akin Gump’s Fred Hodara, was scathing: “Here’s a broken promise … He borrowed $400 million to finance his acquisition of the company and is now doing everything he can to dishonor the desires of those to whom he made the promise to repay those obligations.”
Strikingly, prominent bankruptcy lawyer Martin Bienenstock at Dewey & LeBoeuf (not involved in the case) weighed in critically against the decision, saying it “makes little sense” to allow “management [to] choose its owners at the expense of creditors’ rights.”
-posted by brian
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