Court rejects delay of newspaper auction

Philadelphia Newspapers L.L.C.'s bankruptcy auction remains scheduled for April 27.

A three-judge panel with the U.S. Court of Appeals for the Third Circuit has rejected a request from the company's senior lenders to delay the auction until the full Third Circuit Court decides if it will hear an appeal of a key issue in the bankruptcy case.

The same panel announced Wednesday that the lenders' request for a full hearing would be given "expedited consideration."

Lawrence G. McMichael, attorney for the company, said he was delighted with the ruling denying the stay.

"We are looking forward to the auction and getting out of bankruptcy," he said.

Fred S. Hodara, lead attorney for the senior lenders, indicated that his clients were heartened by the "expedited consideration" of their request for a rehearing.

"We'll see where that leads," he said in an e-mail.

The senior lenders, who hold the largest portion of the company's debt, are seeking a reconsideration of a ruling that denied them the right to use the debt they are owed to bid for the company. Otherwise, the lenders would have to bid cash for the media firm at auction.

Earlier in the day, Brian Tierney, president and chief executive officer of Philadelphia Newspapers, lashed out at the senior lenders, suggesting that they were trying to financially destroy the media firm by seeking to delay the auction. The company owns The Inquirer, the Philadelphia Daily News, and Philly.com.

The lenders, who include Angelo, Gordon & Co., CIT Group Inc., and Credit Suisse, filed for a stay Tuesday after earlier agreeing to the auction date. Tierney said that represented a "broken promise" not to delay the auction.

Should the auction be delayed, the company's bankruptcy case could drag on well into the summer and beyond, which would be a financial disaster, Tierney said. The company has estimated that it will run out of operating cash by July.

Company officials have said that legal fees and investment-adviser fees for Philadelphia Newspapers, and for the creditors (which the company must also pay), have reached $26 million and are climbing.

Tierney said some of his advisers believed that the lenders were trying to delay the case to "cripple the company so we have to capitulate."

"I will not capitulate," he said.

Hodara, told that Tierney thought the lenders had "broken their promise" not to delay the auction, responded by saying it was Tierney who had failed to live up to his word.

"Here's a broken promise," Hodara wrote in an e-mail response. "He borrowed $400 million to finance his acquisition of the company and is now doing everything he can to dishonor the desires of those to whom he made the promise to repay those obligations."