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'Inky' Wins Round One In Bankruptcy Court Motions
  
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Two Weeks Of Operations Assured As Negotiations Continue
By John P. Connolly, The Bulletin
The first bankruptcy hearing for the parent company of The Philadelphia Inquirer and Daily News allowed the company to tap cash collateral from lenders to continue operating while under bankruptcy court protection.
Philadelphia Newspapers LLC, a subsidiary of Philadelphia Media Holdings (PMH), was granted permission by the bankruptcy court to use about $1.6 million of lender Citizens Bank’s cash collateral to fund operating costs on an interim basis. Among the costs incurred to the company is a $700,000 monthly bill from PECO for electricity.
“The sompany achieved all of its objectives in court today, including approval to use its cash collateral, the payment of taxes and utilities, the payment of carriers, and, most importantly, the payment of all of its employees,” said Jay Devine, spokesperson for Philadelphia Newspapers.
Judge Jean K. FitzSimon, who was very patient with the proceedings, allowed both sides to present their opinions, even on areas not directly addressed by yesterday’s hearing. Although all parties stressed that they are committed to seeing a healthy Inquirer operating, there were several points touched on that hint at larger disputes down the road. Judge FitzSimon also drew a round of applause when she indicated she was a paid suscriber to The Inquirer. This was in response to a motion by The Inquirer’s attorneys for funds to pay subscribers who cancel their subscriptions. An acknowledgement later in the hearings that one of the attorneys representing the bank was also a subscriber drew no applause from a courtroom composed primarily of teamsters and lawyers.
Most prominent among the points of disagreement between Philadelphia Newspapers and its lenders is the company’s proposal to provide debtor in possession (DIP) financing, special financing given on a temporary basis to companies in bankruptcy proceedings. Philadelphia Newspapers wants to acquire DIP financing from Callowhill Partners LLC, a proposal objected to by Citizens Bank.
According to the objection submitted by Citizens Bank, the bank had already agreed to provide DIP financing to Philadelphia Newspapers in the amount of $20 million. When Citizens Bank sent in the paperwork for comments, the only response they got was a late-night e-mail notice during the Oscars of intent to file for bankruptcy.
Further, attorneys for Citizens Bank asserted that Bruce Toll, a founding investor with PMH, proposed to fund the current DIP financing request. Attorneys referred to the Callowhill DIP financing proposal as the “Bruce Toll DIP.” Further, the DIP financing proposal touched on another consideration for Citizens Bank: the commitment of Philadelphia Newspapers and PMH to restructuring.
“It is unfortunate that the company’s senior creditors took this hearing as an opportunity to attack the company and the alternative DIP loan presented by the company,” said Mr. Devine. “The true reason for their attack is that the DIP loan offered by the banks is much more expensive than the other DIP loan that has been proposed to the company.”
Mr. Devine said that the alternate DIP loan provides an additional $5 million of liquidity, an interest rate that is 2.5 percent lower than the bank’s loan, the payment of $375,000 less in fees, a longer term, and does not require the continued payment of all of the professional fees of the senior lenders.
Citizens Bank criticized Mr. Tierney’s leadership at the hearing, asserting that under his leadership Philadelphia Newspapers has failed to make interest payments, notify lenders of their decisions and meet its financial plans.
Mr. Tierney responded to the criticisms, characterizing them as a “change of heart” on the bank’s part.
“For the last several months and up until the moment we filed, they wanted me to stay and offered me a handsome compensation plan and a piece of the company — both verbally and in writing,” said Mr. Tierney.
“We really think it’s ironic that the lenders want to replace Brian,” said Mr. Devine. “They made him a pretty juicy management offer only two months ago, and now they’re treating him like the village idiot.”
PMH announced at the hearing that Mr. Tierney and other executives that received raises in December have rolled back their salaries to pre-raise points during bankruptcy. The executives had come under heavy criticism for the raises, which were given during a period when workers were denied raises.
The debtors have not yet filed a bankruptcy schedule outlining their total assets and liabilities, but they did propose an operating budget for the next two weeks. The budget for the next two weeks, because it’s the end of the month, shows negative cash flow of about $1.6 million. Despite this fact, Richard Thayer, executive vice president for finance with Philadelphia Newspapers has said that the newspapers expect to post earnings before interest and taxes of $25 million for 2009.
Citizens Bank said at the hearing that the value of Philadelphia Newspaper’s senior debt is trading at 20 cents on the dollar, indicating that the company could have a value as low as $60 million.
The court has scheduled a hearing for March 9, 2009, to rule on the DIP financing.
John P. Connolly can be reached at jconnolly@thebulletin.us
Philadelphia Newspapers LLC, a subsidiary of Philadelphia Media Holdings (PMH), was granted permission by the bankruptcy court to use about $1.6 million of lender Citizens Bank’s cash collateral to fund operating costs on an interim basis. Among the costs incurred to the company is a $700,000 monthly bill from PECO for electricity.
“The sompany achieved all of its objectives in court today, including approval to use its cash collateral, the payment of taxes and utilities, the payment of carriers, and, most importantly, the payment of all of its employees,” said Jay Devine, spokesperson for Philadelphia Newspapers.
Judge Jean K. FitzSimon, who was very patient with the proceedings, allowed both sides to present their opinions, even on areas not directly addressed by yesterday’s hearing. Although all parties stressed that they are committed to seeing a healthy Inquirer operating, there were several points touched on that hint at larger disputes down the road. Judge FitzSimon also drew a round of applause when she indicated she was a paid suscriber to The Inquirer. This was in response to a motion by The Inquirer’s attorneys for funds to pay subscribers who cancel their subscriptions. An acknowledgement later in the hearings that one of the attorneys representing the bank was also a subscriber drew no applause from a courtroom composed primarily of teamsters and lawyers.
Most prominent among the points of disagreement between Philadelphia Newspapers and its lenders is the company’s proposal to provide debtor in possession (DIP) financing, special financing given on a temporary basis to companies in bankruptcy proceedings. Philadelphia Newspapers wants to acquire DIP financing from Callowhill Partners LLC, a proposal objected to by Citizens Bank.
According to the objection submitted by Citizens Bank, the bank had already agreed to provide DIP financing to Philadelphia Newspapers in the amount of $20 million. When Citizens Bank sent in the paperwork for comments, the only response they got was a late-night e-mail notice during the Oscars of intent to file for bankruptcy.
Further, attorneys for Citizens Bank asserted that Bruce Toll, a founding investor with PMH, proposed to fund the current DIP financing request. Attorneys referred to the Callowhill DIP financing proposal as the “Bruce Toll DIP.” Further, the DIP financing proposal touched on another consideration for Citizens Bank: the commitment of Philadelphia Newspapers and PMH to restructuring.
“It is unfortunate that the company’s senior creditors took this hearing as an opportunity to attack the company and the alternative DIP loan presented by the company,” said Mr. Devine. “The true reason for their attack is that the DIP loan offered by the banks is much more expensive than the other DIP loan that has been proposed to the company.”
Mr. Devine said that the alternate DIP loan provides an additional $5 million of liquidity, an interest rate that is 2.5 percent lower than the bank’s loan, the payment of $375,000 less in fees, a longer term, and does not require the continued payment of all of the professional fees of the senior lenders.
Citizens Bank criticized Mr. Tierney’s leadership at the hearing, asserting that under his leadership Philadelphia Newspapers has failed to make interest payments, notify lenders of their decisions and meet its financial plans.
Mr. Tierney responded to the criticisms, characterizing them as a “change of heart” on the bank’s part.
“For the last several months and up until the moment we filed, they wanted me to stay and offered me a handsome compensation plan and a piece of the company — both verbally and in writing,” said Mr. Tierney.
“We really think it’s ironic that the lenders want to replace Brian,” said Mr. Devine. “They made him a pretty juicy management offer only two months ago, and now they’re treating him like the village idiot.”
PMH announced at the hearing that Mr. Tierney and other executives that received raises in December have rolled back their salaries to pre-raise points during bankruptcy. The executives had come under heavy criticism for the raises, which were given during a period when workers were denied raises.
The debtors have not yet filed a bankruptcy schedule outlining their total assets and liabilities, but they did propose an operating budget for the next two weeks. The budget for the next two weeks, because it’s the end of the month, shows negative cash flow of about $1.6 million. Despite this fact, Richard Thayer, executive vice president for finance with Philadelphia Newspapers has said that the newspapers expect to post earnings before interest and taxes of $25 million for 2009.
Citizens Bank said at the hearing that the value of Philadelphia Newspaper’s senior debt is trading at 20 cents on the dollar, indicating that the company could have a value as low as $60 million.
The court has scheduled a hearing for March 9, 2009, to rule on the DIP financing.
John P. Connolly can be reached at jconnolly@thebulletin.us
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