Newspapers' offer may not be enough to settle debt

Philadelphia Newspapers L.L.C.'s latest offer to settle its debt with its senior lenders might not have enough support among those lenders to win approval, company chief executive officer Brian P. Tierney said last night.

Tierney said informal discussions with lenders had left that impression. Lenders holding more than 50 percent of the $300 million debt must support the offer, which otherwise will expire at 5 p.m. today.

"We are not getting a clear-cut answer to what it would take to get a deal done," Tierney said. "It is frustrating."

Lawrence G. McMichael, the company's lead bankruptcy attorney, said he expected a formal response to the offer before the deadline today. McMichael declined to discuss any of the negotiations he has had with lenders.

Andrew C. Kassner, the attorney who represents Citizens Bank in the Philadelphia Newspapers' bankruptcy case, did not return a call for comment. Citizens Bank serves as the agent for the senior lenders, the debt holders first in line to be repaid.

The news of the lenders' likely reaction to the latest offer came on a day when members of three of the company's unions protested outside the Citizens Bank headquarters in Center City.

The unions, sympathetic to the present owners and management, said they would extend their contracts day-to-day. They believe that arrangement gives them the ability to react quickly if there is a change in ownership.

The company last week raised its offer to its senior lenders by adding a $20 million note to be paid over five years and a promise, with certain restrictions, to share profits and any increase in company value for up to five years. That would be in addition to a previous offer of $37 million in cash and the company's Broad Street headquarters building, which the media firm valued at about $29.5 million. The new offer represented about $87 million to settle $300 million in debt.

"We are trying to address various concerns of our lenders," Tierney said. "And we are trying to make clear that our investor group is interested not in short-term profits, but in doing what is good for these papers and the community."

He was referring to Bruce Toll, vice chairman of Toll Bros. Inc.; the Carpenters Union pension fund; and philanthropist David Haas, who have agreed to buy the company and provide funding to pay off the senior lenders.

Tierney said he was counting on Citizens Bank to explain how the current offer might be lacking or what could be done to improve it.

"We're desperately looking for Citizens Bank to lead and tell us, specifically, what they need to get an offer done," Tierney said.

As it now stands, Philadelphia Newspapers, which owns The Inquirer, the Philadelphia Daily News, and Philly.com, is set for auction Nov. 18. Its senior lenders have said they intend to bid.

On Friday, the three unions representing the newspapers' mailers, pressmen, and drivers notified the company they would not agree to another monthlong contract extension but would instead extend work agreements day-to-day.

John Laigaie, president of Teamsters Local 628, said the decision was prompted by concern over what the senior lenders might do if they took control of the company.

John Dagle, vice president of Local 628, questioned the senior lenders' motives.

"We believe that they're just profiteering and that if they get control of the newspapers, they're just going to siphon off the profits and not put the money into quality local journalism and investigations," he said.

Fred S. Hodara, the lead lawyer for the senior lenders, has said the group intends to continue to publish both The Inquirer and the Daily News. It will put in place, he has said, a new management team with an eye toward producing quality newspapers and a financially secure company.

In a related matter, Sunday Inquirer circulation fell 10.3 percent, to 499,140 from 556,426 in the year-earlier period, according to the Audit Bureau of Circulations.

Nationwide, average daily newspaper circulation fell 10.6 percent between April and September and Sunday circulation slipped 7.5 percent.

A year-to-year comparison of the Inquirer's daily circulation was unavailable from the audit group because the Inquirer and Daily News circulations were merged earlier this year. The combined circulation of the two newspapers was 361,440, according to the figures.

Web-site traffic at Philly.com soared, according to the audit bureau. The site had 5.2 million unique visitors in September, a huge increase from the 1.2 million unique visitors in September 2008.