Newspaper owners improve offer to lenders

Philadelphia Newspapers L.L.C. has sweetened its offer to its lenders with a $20 million credit note and a promise to share profits and any increase in company value for up to five years.

The new offer would guarantee $87 million to the senior lenders to clear about $300 million in debt. The offer, which was made last night, expires next Tuesday. A meeting is set for Friday with the senior lenders to discuss the proposal.

Company officials said the new offer was meant to address lender concerns that the company's original $67 million proposal, made as part of its reorganization plan in Bankruptcy Court, was not high enough and that they might be passing up a good investment should newspapers rebound with the economy.

The new offer is backed by a local investment group that is made up of Bruce Toll, vice chairman of Toll Bros. Inc.; the Carpenters Union pension fund; and philanthropist David Haas. Toll and the pension fund were among the original investors in the company in 2006.

The group, which would be called Philly Papers L.L.C., had previously pledged to invest $35 million in the company, which owns The Inquirer, the Philadelphia Daily News, and Philly.com.

With that money and cash on hand, the company made an original offer to lenders of about $37 million in cash and the company's Broad Street headquarters, which the media firm valued at $29.5 million.

The new offer adds a $20 million note, backed by the local investment group. The note would be paid off over five years at 6 percent interest, the company said.

In addition, for up to five years, lenders would receive 50 percent of the company's annual profit, after capital expenditures, debt service on the note, and a 20 percent return on the local group's $35 million investment.

If the company were sold within five years, senior lenders would receive 50 percent of any increase in the company's value, minus the local investment group's $35 million plus a 20 percent investment return.

As an example, one company official estimated that lenders would receive about $65 million should the company be sold for $200 million.

"We are trying to address different concerns by different lenders," Brian P. Tierney, the company's chief executive officer, said in an interview. "One is that the value is not high enough . . . and we are also saying to them: If you think this company is a terrific investment, then we will offer you a share of the profits over the next five years."

The new proposal comes on the heels of a recent Bankruptcy Court ruling that allows the company's senior lenders to bid the debt they are owed when the company is put up for auction Nov. 18. That ruling, which has been appealed, gives the senior lenders significant leverage in that they would not have to raise cash to bid for the company.

In an e-mail message last night, Fred S. Hodara, the lead lawyer representing the senior lenders, said he had not yet seen the company's proposal.

"Lenders are proceeding full-speed ahead with their credit bid," he wrote.