One expensive year later, and papers remain bankrupt

Posted: February 22, 2010

Today marks a year since the parent company of the Daily News, the Inquirer and philly.com filed for bankruptcy - and no end is in sight to what sometimes has been a brass-knuckles brawl to control the leading news organization in the nation's sixth-largest city.

But the man at the center of this newspaper snowmageddon, Philadelphia Media Holdings' embattled chief executive, Brian Tierney, said in an interview that although he's frustrated by the delays, he also is excited by the fight.

Tierney said that the mood at the papers' offices is "oddly exhilarating, because what we are fighting for is real improvement, and I feel the papers are better today than in 2006 when we took over" from longtime and nowdefunct owner Knight-Ridder Corp. In particular, he cited the national award won last week by two Daily News reporters for their "Tainted Justice" series on police corruption.

Sounding at times like a populist candidate for political office, Tierney continues to argue that fighting for a local group to maintain control of the Philadelphia newspapers will keep the newsroom out of the hands of the Wall Street hedge funds.

Needless to say, the creditors who own the debt that once financed the 2006 purchase - and who now are fighting Tierney's faction for the right to take ownership of the papers coming out of bankruptcy - see things differently.

"The lenders are looking forward to the end of a bankruptcy case that has gone on for way too long," said Fred Hodara, attorney for the secured lenders. He said that legal decisions between now and the end of March should break the logjam, adding that "there's good reason to think the Philadelphia Inquirer and Daily News will be able to emerge from bankruptcy as vibrant newspapers finally, and the lenders are looking forward to being part of the successful conclusion of that process."

It already has been a long, strange trip for the newspapers and the people battling to control them since Philadelphia Media Holdings announced on Feb. 21, 2009, that it would file for Chapter 11 bankruptcy.

Many saw a bold experiment when a group of local, wealthy newspaper novices, led by Tierney with real-estate and auto magnate Bruce Toll as chairman, bought the papers in 2006. But the new owners were hit immediately with the double whammy of a loss of readers and advertisers to the Internet and with the Great Recession, which dropped revenue below the amount needed to repay the $390 million in borrowing that financed the purchase.

At the time of the bankruptcy filing, Tierney and others had predicted and expected that the newspapers would emerge in less than a year. Instead, a dragged-out courtroom struggle between Tierney's faction - which wants a group led by Toll, the local carpenters' union and philanthropist David Haas - and the creditors has been an expensive one.

Tierney said in the interview that the costs of the bankruptcy have been piling up at the rate of $2 million a month, or $26.2 million, since the filing, with the creditors and their lawyers accounting for the lion's share. He said these costs swamped what otherwise was a $15 million operating profit in 2009, and "that's disgraceful."

The Philadelphia case is neither the only major newspaper bankruptcy in America nor the only one that has dragged on. Most notoriously, the Tribune Co. - owner of the Chicago Tribune and the Los Angeles Times, among others - and its flamboyant owner, Sam Zell, have been embroiled in a messy bankruptcy since December 2008 and will emerge no sooner than May.

Tierney said he is fighting to avoid a situation like that at the Minneapolis Star-Tribune, where more cutbacks were announced after the paper emerged from bankruptcy with an ownership group led by the New York distressed-debt specialists Angelo, Gordon & Co., also a major creditor here. Said Tierney of the Minneapolis workers: "They didn't have somebody like me fighting for them."

He also took a sharp swipe at the large, bailed-out-by-Britain Royal Bank of Scotland (RBS), which he said recently bought about $11 million worth of Philadelphia newspaper debt for 18 cents on the dollar at the same time it opened a gleaming U.S. headquarters in Connecticut with a health center offering employee massages. "Now they want to profiteer by buying into the process," he said.

"We don't have any comment," said Mike Geller, spokesman for RBS Americas, although privately officials have said the massages are just part of a routine fee-based company fitness center.

Tierney said he continues to regard as a major issue alleged unlawful taping of a key meeting by one of the creditors - who've denied any wrongdoing. Equally important, he said, are keeping the papers out of the hands of hedge funds, and a long-term strategic plan that he acknowledged would have "some pain involved" for employees. Other major U.S. newspapers have cut worker salaries or laid off staffers, and many have done both.

He said any agreement with employees at the heavily unionized Philadelphia newspapers would also involve sharing gains "as the business improves."

When and if those gains might come, even after the papers emerge from bankruptcy, is a matter of debate. Fitch Ratings newspaper analyst Mike Simonton, who correctly predicted the wave of bankruptcies and closings in late 2008 and 2009, said it would be some time before newspapers can process the loss of classified ads to online services like Craigslist.

"We believe that the ecomomy is returning to more positive growth," Simonton said. "But we believe that most newspapers will be left behind."

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