PNL bankruptcy: Raises returned, creditors held at bay, Tierney fights for Daily News' survival

ALEJANDRO A. ALVAREZ / Staff photographer
ALEJANDRO A. ALVAREZ / Staff photographer
Posted: February 25, 2009

In the face of strong criticism from newspaper creditors, the chief executive of the Inquirer and Daily News, Brian Tierney, agreed yesterday to give up a recent $232,000 raise and settle for the $618,000-a-year he was already getting.

The newspapers' attorney, Lawrence McMichael, disclosed Tierney's concession near the outset of a Chapter 11 bankruptcy hearing in which the media company is trying to get out from under nearly $400 million in debt.

"Rather than have a distraction over salaries," McMichael told U.S. Bankruptcy Judge Jean K. FitzSimon, the publisher was willing to give up his December 2008 pay raise.

Daily News Publisher Mark Frisby and the company's executive vice president for finance, Richard Thayer, also surrendered December raises, which had increased their salaries to $475,000 each.

The pay increase was approved by several of Tierney's local investors - even though the newspaper's management had failed to make debt payments for two months and had convinced the newspaper's unionized workers to give up a $25-a-week pay increase to help the company's bottom line.

"This is a company in need of parental supervision," said Fred S. Hodara, one of the attorneys representing the newspapers' top creditors.

Tierney is a former public-relations executive who sank $10 million of his own money into the purchase of the papers in mid-2006, an investment that now looks nearly worthless.

He shot back with a prepared statement in late afternoon.

It referred to several months of secret negotiations with the newspaper's top creditors, trying to reach agreement on the future of the company.

Tierney said that the bankers had been willing to pay him more than $1 million a year to continue managing the venture - but only if he agreed to massive cuts that, in his view, "would damage the company."

"For the last several months and up until the moment we filed [for bankruptcy on Sunday], they wanted me to stay and offered me a handsome compensation plan and a piece of the company," Tierney said.

Tierney declined to detail the proposed cuts in an interview, but said that some of the newspapers' debt is held by the same investment companies that have taken over the Minneapolis Star Tribune, "where they want to break all the contracts. They're demanding up to 25 percent pay cuts while making $30 million a year.

"We've been able to save $75 million in costs in Philadelphia by working with people and treating people with respect, exactly the opposite of what these guys are doing in Minneapolis," Tierney said.

"As long as I'm running the place, the Daily News will never be closed and we'll never rescind our contracts."

Sources have told the Daily News that some of the company's creditors had proposed closing the tabloid as part of a restructuring.

Dozens of the company's unionized workers, mostly from the Teamsters union, showed up outside the U.S. Bankruptcy Court yesterday to support the company's Chapter 11 petition. Several told television cameras that Tierney had earned his salary increases by keeping the newspapers alive and saving hundreds of union jobs.

"It's only because of local ownership that both these newspapers are still publishing," said John Dagle, vice president of Teamsters Local 628, representing Inquirer and Daily News drivers. "It seems to us that the banks are intent on getting operating control of the papers and extracting as much profit as possible. . . . They'd probably stop publishing one of the papers."

While most of the union members waited outside, Judge FitzSimon heard more than two hours of legal presentations and then granted the company's request to use existing cash to meet payroll and other operating costs for the next two weeks.

She set a March 9 hearing on a more contested issue - the newspapers' effort to borrow up to $25 million for future expenses, known as "debtor-in-possession," or DIP, financing.

Tierney wants to borrow the money from the same local investors who helped finance his purchase of the Philadelphia newspapers in mid-2006.

But the company's biggest creditors - Citizens Bank and other investment firms that hold approximately $395 million in loans - are opposed to the $25 million DIP package. One condition of the proposed loan is that Tierney would remain as chief executive. *

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