Philadelphia Inquirer, Daily News Owner Files for Bankruptcy Protection

The Philadelphia Inquirer-Daily News Building in Philadelphia, PA.

Philadelphia Newspapers LLC, a subsidiary of Philadelphia Media Holdings (PMH) which owns The Philadelphia Inquirer, the Philadelphia Daily News, and Philly.com, filed for bankruptcy protection on Sunday in order to restructure its $390 million in debt load.

“As a company, we have been hit with a perfect storm, including a dramatic decline in total revenue, the worst economic conditions since the Great Depression and a debt structure which is out of line with current economic reality,” Philadelphia Media Holdings CEO Brian Tierney said in a memo to employees obtained by The Observer.

“Despite these difficult circumstances, we have been working towards an operational structure that can flourish once we get the debt restructured.”

According to a story in The Inquirer, the company had already been assessed $13.4 million in penalties and interest for missing payments in 2007 by its lending group, led by Citizens Bank of Pennsylvania. That sum also includes fees for lenders, lawyers and consultants, including Blackstone Group, Drinker Biddle and Akin Gump, the newspaper company said.

Philadelphia Newspapers said it will continue normal operations of its newspapers, magazines and online businesses. and that it’s not currently seeking concessions from the newspapers’ labor unions.

“This restructuring is focused solely on our debt, not our operations,” Tierney said.

However, PMH can use the bankruptcy filing as a a way to force concessions from its unions, according to WHYY commentator and former Inquirer employee Tom Ferrick.

“Management’s main goal probably will be to end or cripple the seniority system so it can lay off senior staffers (many of whom make between $70,000-$80,000 a year) and replace them with cheaper labor (at $26,000-$46,000 a year),” Ferrick said. “They tried hard in the last contract talks to do it. Under Chapter 11, they have a new chance.”

“Before PMH can take any action to modify any of its obligations under our contract, it must negotiate in good faith with the Guild and prove that the contract changes it seeks are necessary to permit the reorganization and prevent the liquidation of the enterprise,” said Dan Gross, the president of The Newspaper Guild, which represents the newsroom, the sales force, and most of the company’s white-collar workers.

Prior to their purchase by PMH, the Philadelphia newspapers were among 12 former Knight Ridder Inc. newspapers that Sacramento, California-based McClatchy Co. sold after acquiring the chain in June 2006 for $4.1 billion.

Investors led by Tierney paid McClatchy Co. $562 million for Philadelphia Newspapers.

Bankruptcy Will Cost Owners

Among the losers associated with the bankruptcy filing are the Inquirer’s owners and unsecured creditors.

Brian Tierney at the 2007 PRSA (Public Relations Society of America) International Conference in Philadelphia, PA.

According to Bloomberg, Philadelphia Newspapers LLC will wind up with new owners while $98.5 million worth of notes aren’t likely to recover anything.

“The investors will lose everything,” said Philadelphia Newspapers investor Bruce Toll, 65, who is also vice chairman of homebuilder Toll Brothers Inc. “We’re putting together a proposal for smaller debt.”

Toll told Bloomberg he hopes Philadelphia Newspapers will leave bankruptcy in about four months, but declined to say how much the company plans to ask debt holders to accept.

Kirk Ruddy, who trades bankruptcy debt at APS Capital Corp. in Austin, Texas, had a much more sobering assessment for the newspapers’ creditors.

“If you are a creditor of a newspaper company right now, don’t expect to get paid back.”

CEO Gets Raise as Newspapers Grapple with Bankruptcy

As the parent company of the Philadelphia Inquirer and Daily News filed for Chaper 11 bankruptcy, Philadelphia Media Holdings CEO Brian Tierney actually had his salary bosted by 38% just two months ago, from $565,000 a year to $618,000 a year, according to Forbes.

Tierney, a veteran public relations executive who represented Philadelphia’s Roman Catholic archdiocese and had tussled with the paper over its coverage of the church, demanded a 10% cost concession from workers back in January 2008, only to see his pay boosted by $53,000 a year around Christmas time.

However, executive vice president Richard Thayer said the company was still saving money because Tierney “without an increase in compensation” became publisher of both papers in the fall of 2006 after former publisher Joe Natoli resigned for a job at the University of Miami.