Auction for newspapers delayed one week

An auction of the operating assets of Philadelphia Newspapers L.L.C. scheduled for Wednesday will be postponed at least a week as a result of a ruling yesterday by U.S. District Judge Eduardo C. Robreno.

Robreno had ruled Tuesday that the newspaper company's senior lenders did not have a right to bid the value of about $318 million in loans in the auction, which is designed to determine the fair-market value of the company's assets.

That ruling overturned a decision by Chief Bankruptcy Judge Stephen Raslavich, who had authorized a so-called credit bid by the lenders, a group that includes Citizens Bank, Angelo, Gordon & Co., the CIT Group Inc. and Eaton Vance Corp.

The lenders filed notice of appeal yesterday with the U.S. Court of Appeals for the Third Circuit, then returned to Robreno to ask that he block next week's auction while the appeals court weighed the case.

After a 90-minute hearing, Robreno said the lenders had not justified their plea that he indefinitely block the auction. But Robreno granted a separate motion, made orally during the hearing, for a weeklong stay so that the appeals court could consider expedited arguments on his ruling.

Lawrence G. McMichael, an attorney for Philadelphia Newspapers, said the company was pleased with the ruling and expected to go forward with getting bids for the company's operating assets as soon as possible.

"The auction is going to get pushed back by a week - as a practical matter, that's what this means," McMichael said after the ruling. He said the company's goal was "to get out of bankruptcy by the end of the year."

It is unclear how many bids might be made for the assets of Philadelphia Newspapers, which owns The Inquirer, the Philadelphia Daily News, and Philly.com.

The use of money lent to the company by its creditors relieves the need to raise cash to participate in the auction.

As part of the company's reorganization plan, a group of three local investors have agreed to put up $35 million and a $17 million letter of credit in their effort to buy the media firm.

A portion of the investors' purchase price would be used to provide cash to the lenders as part of a proposed $67 million debt-settlement offer that would eliminate $318 million in debt.

Abid Qureshi, an attorney for the senior lenders, said after the hearing that the creditors group considered the offer - known as a "stalking-horse bid" - to be too little, given the creditors' assessment of the company's value.

"If the stalking-horse bid were significantly higher than it was, we wouldn't be here," Qureshi said. He said that if the local investor group "puts enough cash on the table, our guys will take it."