But lawyers for the investors who hold $297 million in debt said they were stunned that Brian P. Tierney, chief executive of the papers, had turned away from a $20 million lifeline from current lenders in favor of a loan that would protect his job, according to a court filing and testimony at yesterday's opening hearing in Philadelphia.
Instead, Tierney and his backers lined up a $25 million loan - known as debtor-in-possession financing - from a different group that included Philadelphia Newspapers chairman Bruce Toll. It includes a provision that would put the loan in default if Tierney left the company.
Fred S. Hodara, an attorney for the lenders, called the proposed loan a "management-preservation DIP facility. Because that's really what it's about. It's a weapon."
However, Tierney and his lawyers said the lenders wanted the company to hire a chief restructuring officer to help oversee operations - something the company had resisted in negotiations leading up to its bankruptcy filing Sunday.
A bankruptcy restructuring can result in steep labor cuts, asset sales, even a complete shutdown, depending on who is in charge and what they want.
"Once we told them that we weren't interested in working for them to, in effect, damage the company we love, they had a change of heart," said Tierney, who was criticized in court for recent executive pay raises. Tierney was not in court; his remarks followed the day's proceedings.
U.S. Bankruptcy Judge Jean K. FitzSimon, who said she "wouldn't know what's going on around town without my Inquirer" to the cheers of the papers' employees, scheduled a hearing for March 9 on the competing proposals for financing the company through bankruptcy.
No matter which loan had been preferred by Philadelphia Newspapers, which owns The Inquirer, the Daily News and Philly.com, the company was destined for Bankruptcy Court. The purpose of debtor-in-possession financing is getting a company through bankruptcy.
