The original investors in the 2006 purchase of The Inquirer, the Philadelphia Daily News, and Philly.com have offered their major creditors $50 million to bring the company out of bankruptcy.
The proposal was disclosed in a filing in U.S. Bankruptcy Court in Philadelphia yesterday and was one of several key developments in the legal battle between Philadelphia Newspapers L.L.C. and its senior lenders, the creditors with the strongest claims on the company's assets.
The senior lenders - who include New York financial firms Angelo, Gordon & Co., and CIT Group Inc. - are owed about $300 million by the company headed by Brian P. Tierney. He and his partners purchased the newspaper company for $515 million plus assumed liabilities.
Tierney said yesterday that the lending group, represented by Citizens Bank, has not provided a formal written response to the $50 million proposal, which would require a substantial amount of debt forgiveness.
There were other key developments in the case:
The two sides reached an agreement allowing the company to continue using its cash to operate the business for the next five weeks. The company projected that it would have $11 million in cash and $48 million in accounts receivable on May 22, when the agreement on the company's use of its cash expires.
As part of that agreement, the leading group of senior lenders dropped demands regarding a chief restructuring officer and the imposition of two independent "directors/managers" to oversee the company's operations and reorganization. Those demands were made in a court filing Friday.
Fred S. Hodara, an attorney with Akin Gump Strauss Hauer & Feld L.L.P. who represent senior lenders, said after the brief hearing that it would have been usual to win those demands in a short-term agreement on the use of cash. They remain a goal of the major creditors, he said.
Tierney called those demands an "insincere, bogus request."
A matter that could not be resolved yesterday in hours of negotiations was Philadelphia Newspapers' desire to hire special counsel to investigate the alleged unauthorized recording of a business meeting by CIT executive Vincent DeVito.
It is illegal to make unauthorized recordings in Pennsylvania.
Tierney was in court yesterday hoping to testify on the alleged taping. "These are serious, serious issues we need to get to the bottom of," Tierney said after the hearing.
Hodara said the issue of the taping was a "total sideshow."
Judge Jean K. FitzSimon scheduled a hearing on the matter for Monday.
Tierney said he was looking forward to testifying on the taping and the lenders' charges that he was enriching himself with raises and bonuses despite the company's financial distress.
The lenders said in a court filing that Tierney "has used the debtors' assets to further his own self interests.. . ."
Tierney said the major creditors had sought to retain him as CEO and offered him generous compensation if he instituted their restructuring plans.
"They offered me $2.5 million in equity value . . . up front," Tierney said. He said they also offered him an additional $1.2 million in salary and bonus, that would bring the entire package to $3.7 million.
"This is what I will testify under oath next week," he said. "I have it in writing. I rejected this. This is why it's so disingenuous for them to say they're upset."