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Bankruptcy Reveals 'Inquirer' Woes
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‘Likely Be Forced To Cease Operations’
By John P. Connolly, The Bulletin
The bankruptcy filing of Philadelphia Media Holdings (PMH), the parent company of The Philadelphia Inquirer and the Philadelphia Daily News, revealed that the company has missed tax payments, employee pay cycles and third-party withholding payouts.
PMH is scheduled for a hearing in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania today at 11 a.m. Its bankruptcy filing shows just how dire its financial situation is.
When Brian Tierney and PMH purchased the two papers in 2006, it assumed large amounts of debt with lender Citizens Bank. The original principal on PMH’s loan with Citizens Bank was $295 million with a revolving credit facility available in the amount of $50 million. PMH also borrowed $85 million in subordinated notes, which bear a 16 percent interest rate. The subordinated note debt has since ballooned to $98.5 million. PMH has attempted renegotiating its debt burden with lenders, but to no avail. They filed for bankruptcy this week, looking for permission to dip into their collateral on their loans to pay operating costs.
“The value of [PMH’s] business and assets are almost certainly far less than the amount of the outstanding debt under the Prepetition Credit Agreement,” reads the filing.
The Inquirer is requesting access to the cash collateral that belongs to Citizens Bank in order to pay its most pressing bills. If it cannot gain access to the bank’s cash, the filing states, it would likely be forced to closed.
“Prior to interim or final approval of this DIP facility, the debtors intend to seek authority to use the Prepetition Lenders’ cash collateral on an emergency basis,” it reads. “The debtors intend to use cash collateral and DIP financing to operate their business while they explore various restructuring alternatives,” it continues.
PMH views the use of the collateral on their debt to Citizens Bank as necessary to continue operating, saying that without access to it, PMH would be “immediately and irreparably damaged.”
“Without access to cash collateral, the debtors will not be able to maintain their business operations and continue their restructuring efforts, and would likely be forced to cease to operate,” reads the filing. It goes on to say that PMH does not have “sufficient funds with which to operate their business on an ongoing basis.”
PMH stated in its filing that it will be retaining Jefferies and Company as a financial advisory service throughout bankruptcy.
According to the filing, PMH generated only $36 million in cash flow in 2008, although the actual number was much less based on one-time charges. None of this cash had been used to repay the bank loan since June 2008.
Despite this performance, Mr. Tierney’s initial base salary of $600,000 was increased to $618,000 in May 2008 and to $850,000 in Dec. 2008. PMH’s filing claims that it actually saved money on Mr. Tierney’s salary increases, because he serves as both CEO and managing member of PMH.
“Mr. Tierney’s Dec. 2008 ‘raise’ equates to about $20,000 per month and continues to represent an annual savings of over $300,000 per year by combining two positions into one,” said the filing. “By contrast, since March 2008, the debtors have paid approximately $2.8 million in fees and expenses to professionals hired… at an average cost of more than $250,000 each month.”
However, newsroom workers are disappointed that they did not get their $35 per week raise due to them in their contract, according to Stu Bykofsky, a veteran columnist with the Daily News.
PMH is banking on financing from Callowhill Partners, LLC to provide $25 million to cover their operating costs through bankruptcy. The Inquirer reported in its initial coverage of the filing that NewSpring Capital would be providing that funding. The DIP lenders would, according to the filing, have their obligations made senior to all other obligations that PMH has. That would put a requirement to repay the $25 million to Callowhill before a repayment of the $350 million to Citizens Bank.
Two law firms, Proskauer Rose and Dilworth Paxson, have been hired to handle the legal work for PMH’s bankruptcy proceedings. Michael Tierney, Brian Tierney’s brother, is a partner at Dilworth Paxson. Proskauer partners will charge up to $975 an hour for their services, while Dilworth Paxson will charge $675.
PMH’s gross monthly payroll expenses equal about $10.8 million, or about $2.4 million per week.
“The debtors’ last gross payroll for the regular employees, in the approximate amount of $2.5 million (including all employee deductions, withholding and employer-paid taxes and benefits) was paid on Feb. 13, 2009 for the pay period ending Feb. 6, 2009,” says the filing.
The filing estimated that $4 million in accrued wages, salaries, commissions, bonuses and reimbursable costs remains unpaid. Mr. Bykofsky told The Bulletin that at least the newsroom at the Daily News had been paid, and the checks had cleared. He said that the staff was given paychecks on Thursday, but nobody was told of the bankruptcy filing.
As part of its bankruptcy filing, PMH admitted to its failure to pay out the withholdings from employee paychecks to the proper third parties. The deductions include employee’s shares of health benefits and insurance premiums, 401(k) contributions and union dues.
“Certain deductions that were deducted from regular employees’ earnings may not have been forwarded to the appropriate third-party recipients prior to the petition date,” reads the filing. “The debtors estimate that as of the petition date, $200,000 in deductions may not have been forwarded to the appropriate third-party recipients.”
Further, PMH has also failed to forward employer payroll taxes to the proper authorities, even though they were properly deducted from employee paychecks. PMH estimates that the total number of fees and taxes owed to the authorities does not exceed $550,000.
PMH bought the Inquirer and Daily News from Knight Ridder in 2006. Mr. Tierney, former CEO of the public relations and advertising firm Tierney Communications, gathered investors together with the intention of saving the beleaguered papers. PMH began missing interest payments on its loans in June 2008, and suffered a round of layoffs in Feb. 2008. PMH has been attempting to sell The Inquirer Building on N. Broad Street since Aug. 2007.
John P. Connolly can be reached at jconnolly@thebulletin.us
PMH is scheduled for a hearing in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania today at 11 a.m. Its bankruptcy filing shows just how dire its financial situation is.
When Brian Tierney and PMH purchased the two papers in 2006, it assumed large amounts of debt with lender Citizens Bank. The original principal on PMH’s loan with Citizens Bank was $295 million with a revolving credit facility available in the amount of $50 million. PMH also borrowed $85 million in subordinated notes, which bear a 16 percent interest rate. The subordinated note debt has since ballooned to $98.5 million. PMH has attempted renegotiating its debt burden with lenders, but to no avail. They filed for bankruptcy this week, looking for permission to dip into their collateral on their loans to pay operating costs.
“The value of [PMH’s] business and assets are almost certainly far less than the amount of the outstanding debt under the Prepetition Credit Agreement,” reads the filing.
The Inquirer is requesting access to the cash collateral that belongs to Citizens Bank in order to pay its most pressing bills. If it cannot gain access to the bank’s cash, the filing states, it would likely be forced to closed.
“Prior to interim or final approval of this DIP facility, the debtors intend to seek authority to use the Prepetition Lenders’ cash collateral on an emergency basis,” it reads. “The debtors intend to use cash collateral and DIP financing to operate their business while they explore various restructuring alternatives,” it continues.
PMH views the use of the collateral on their debt to Citizens Bank as necessary to continue operating, saying that without access to it, PMH would be “immediately and irreparably damaged.”
“Without access to cash collateral, the debtors will not be able to maintain their business operations and continue their restructuring efforts, and would likely be forced to cease to operate,” reads the filing. It goes on to say that PMH does not have “sufficient funds with which to operate their business on an ongoing basis.”
PMH stated in its filing that it will be retaining Jefferies and Company as a financial advisory service throughout bankruptcy.
According to the filing, PMH generated only $36 million in cash flow in 2008, although the actual number was much less based on one-time charges. None of this cash had been used to repay the bank loan since June 2008.
Despite this performance, Mr. Tierney’s initial base salary of $600,000 was increased to $618,000 in May 2008 and to $850,000 in Dec. 2008. PMH’s filing claims that it actually saved money on Mr. Tierney’s salary increases, because he serves as both CEO and managing member of PMH.
“Mr. Tierney’s Dec. 2008 ‘raise’ equates to about $20,000 per month and continues to represent an annual savings of over $300,000 per year by combining two positions into one,” said the filing. “By contrast, since March 2008, the debtors have paid approximately $2.8 million in fees and expenses to professionals hired… at an average cost of more than $250,000 each month.”
However, newsroom workers are disappointed that they did not get their $35 per week raise due to them in their contract, according to Stu Bykofsky, a veteran columnist with the Daily News.
PMH is banking on financing from Callowhill Partners, LLC to provide $25 million to cover their operating costs through bankruptcy. The Inquirer reported in its initial coverage of the filing that NewSpring Capital would be providing that funding. The DIP lenders would, according to the filing, have their obligations made senior to all other obligations that PMH has. That would put a requirement to repay the $25 million to Callowhill before a repayment of the $350 million to Citizens Bank.
Two law firms, Proskauer Rose and Dilworth Paxson, have been hired to handle the legal work for PMH’s bankruptcy proceedings. Michael Tierney, Brian Tierney’s brother, is a partner at Dilworth Paxson. Proskauer partners will charge up to $975 an hour for their services, while Dilworth Paxson will charge $675.
PMH’s gross monthly payroll expenses equal about $10.8 million, or about $2.4 million per week.
“The debtors’ last gross payroll for the regular employees, in the approximate amount of $2.5 million (including all employee deductions, withholding and employer-paid taxes and benefits) was paid on Feb. 13, 2009 for the pay period ending Feb. 6, 2009,” says the filing.
The filing estimated that $4 million in accrued wages, salaries, commissions, bonuses and reimbursable costs remains unpaid. Mr. Bykofsky told The Bulletin that at least the newsroom at the Daily News had been paid, and the checks had cleared. He said that the staff was given paychecks on Thursday, but nobody was told of the bankruptcy filing.
As part of its bankruptcy filing, PMH admitted to its failure to pay out the withholdings from employee paychecks to the proper third parties. The deductions include employee’s shares of health benefits and insurance premiums, 401(k) contributions and union dues.
“Certain deductions that were deducted from regular employees’ earnings may not have been forwarded to the appropriate third-party recipients prior to the petition date,” reads the filing. “The debtors estimate that as of the petition date, $200,000 in deductions may not have been forwarded to the appropriate third-party recipients.”
Further, PMH has also failed to forward employer payroll taxes to the proper authorities, even though they were properly deducted from employee paychecks. PMH estimates that the total number of fees and taxes owed to the authorities does not exceed $550,000.
PMH bought the Inquirer and Daily News from Knight Ridder in 2006. Mr. Tierney, former CEO of the public relations and advertising firm Tierney Communications, gathered investors together with the intention of saving the beleaguered papers. PMH began missing interest payments on its loans in June 2008, and suffered a round of layoffs in Feb. 2008. PMH has been attempting to sell The Inquirer Building on N. Broad Street since Aug. 2007.
John P. Connolly can be reached at jconnolly@thebulletin.us
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