Philadelphia Papers to Offer Creditors Little Equity
By: SHIRA OVIDE
Wall Street Journal
August 14, 2009

The company that owns Philadelphia's daily newspapers plans to ask its lenders to wipe out about $300 million in debt for about $90 million in cash, real estate and bankruptcy costs, according to people familiar with the matter, likely sparking a battle for control of two of the country's largest papers.

The proposal, expected to be filed in a bankruptcy court as early as next week, sets up a clash between the lenders and Brian Tierney, a Philadelphia marketing and public relations executive who won a 2006 auction of his hometown dailies, the Philadelphia Inquirer and the Philadelphia Daily News. The operating arm of the papers' parent company has been under bankruptcy protection since February.

In bankruptcy court, lenders often agree to forgive some of what they are owed in return for ownership stakes that push aside existing shareholders, like Mr. Tierney. Instead, Mr. Tierney's proposal offers creditors about $35 million in cash, ownership of the papers' headquarters and related real estate valued at about $30 million, and little to no equity in the new company, according to the people familiar with the matter.

The company's proposal also includes a plan to absorb about $25 million in costs related to exiting bankruptcy, including repaying a bankruptcy loan and paying professional fees. The company would be left with almost no debt.

The papers' lenders include CIT Group Inc., distressed-debt specialist Angelo Gordon and Citizens Bank, a unit of Royal Bank of Scotland Group PLC. The people familiar with the matter cautioned that the finishing touches are still being put on the reorganization plan and that some details could change.

Given the steep decline in the value of newspapers, it is possible some creditors may be content to walk away with a payout of about 22 cents for each dollar they're owed. But a group of the company's primary creditors has resisted the idea in principle, and said it is prepared to ask a bankruptcy court to take over the company instead.

The creditors are being advised by Blackstone Group and others. The papers' financial advisers are led by boutique investment bank Sonenshine Partners.