The company that owns Philadelphia's daily newspapers plans to ask its lenders to wipe out about $300 million in debt in exchange 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 the coming week, sets up a clash between the lenders and the papers' chief executive officer, Brian Tierney, a Philadelphia advertising 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. Instead, the 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 would be left with almost no debt.
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 papers' lenders include CIT Group Inc., distressed-debt specialist Angelo, Gordon & Co. and Citizens Bank, a unit of Royal Bank of Scotland Group.
Some creditors also say they doubt the value the company places on its real estate, and say it's unclear they would be given ownership of the real estate outright.
Philadelphia is shaping up as a test case for how newspaper businesses will be reconfigured, as many corporate-debt defaults hit the struggling industry. The Philadelphia papers are among at least five significant newspaper bankruptcy-protection filings since December, as deep declines in print advertising have left the papers unable to repay their loans.
Two newspaper publishers, Journal Register Co. and the Star Tribune in Minneapolis, are emerging from bankruptcy protection owned by creditors and with a reduced level of debt. Mr. Tierney is agitating against this emerging blueprint, which he says leaves newspapers with too much debt and tees them up for rebound failures.
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