Philadelphia Newspapers Seeking Bankruptcy

By RICHARD PÉREZ-PEÑA

The owners of The Philadelphia Inquirer and The Philadelphia Daily News filed for bankruptcy late Sunday night after talks aimed at restructuring their heavy debt load broke down, executives said.

The papers will continue to operate and will remain under local control, said Brian Tierney, publisher of The Inquirer and the leader of a group of local investors who bought the papers in 2006, one of several newspaper deals from that era that have gone bad as the industry’s revenues have plunged.

Philadelphia Newspapers, a subsidiary of Philadelphia Media Holdings, is the entity filed for bankruptcy protection. In a brief interview late on Sunday night, Mr. Tierney said the company would negotiate with its creditors to rework its debt burden.

“Philadelphia Newspapers’ goal is to bring its debt in line with the reality of current economic conditions,” he said.

He signaled that his company’s primary aim in bankruptcy would be to seek concessions from the consortium of banks that hold its debt, not from the papers’ labor unions. “This restructuring is focused solely on our debt, not our operations,” he said.

The company has been negotiating for the better part of a year with the banks, led by Citizens Bank. It had not been in compliance with its debt covenants since mid-2008, and it suspended payment on the debt last fall. Most recently, executives of Philadelphia Media said the original investors offered to put $25 million into the company, but a meeting with the banks on Friday produced no resolution.

The sale of the Philadelphia papers was one of a flurry of deals made in the two years before the recession began, with buyers — many of whom had no background in the field — paying prices for newspapers that were called exorbitant even at the time. Revenue for most newspapers has dropped more than 20 percent since then, leaving the new owners struggling with debt.

The Tribune Company, which was taken private in December 2007 by Sam Zell, a real estate mogul, filed for bankruptcy less than a year later. The Minneapolis Star Tribune, bought in late 2006 by Avista Capital Partners, a private equity firm, filed for bankruptcy last month. (The Journal Register Company, which was not part of the buying spree of a few years ago, filed for bankruptcy on Saturday.)

The McClatchy Company bought the Knight Ridder chain in 2006, and has struggled with the debt from that deal. McClatchy quickly sold some of its papers, including those in Philadelphia and Minneapolis.

Mr. Tierney, a public relations executive, and his partners paid $562 million for the papers, including about $412 million in borrowed money. There remains about $390 million in debt.

Executives say that with debt payments suspended, the papers continue to generate cash flow, in part because of significant cost-cutting. One said that last year, they had earnings before income, taxes, depreciation and amortization of $36 million.

Philadelphia Newspapers is being advised by the investment bank Jeffries. Its bankruptcy lawyers are from Proskauer Rose and Dilworth Paxson.

Over the months of talks with the banks, Philadelphia Media executives have been frustrated by the consortium charging the company for fees paid to the banks’ lawyers and consultants, and for interest penalties — bills that the newspaper group says total $13.4 million. The executives said they had arranged $25 million in debtor-in-possession loans to continue operations.

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