Bankruptcy judge to hear arguments in pending sale of Philadelphia Inquirer, Daily News, Philly.com

A federal bankruptcy judge will be asked Thursday to give his blessing to a reorganization plan that would surrender the parent company of The Inquirer to a collection of the firm's creditors.

Chief Bankruptcy Judge Stephen Raslavich will hear arguments for and against the plan, which would conclude the contentious 17-month case.

Though the plan has its detractors, it is supported by the vast majority of the company's creditors.

Lawrence G. McMichael, attorney for the company, Philadelphia Newspapers L.L.C., said he expected Raslavich to confirm the plan. His confidence was shared by Fred S. Hodara, lead attorney for the senior lenders, who said he also expected confirmation.

The plan received further support Wednesday from the committee of unsecured creditors, which offered its backing in a court filing.

Under the plan, Philadelphia Newspapers, which owns The Inquirer, the Philadelphia Daily News, and the website Philly.com, will become the property of Philadelphia Media Network Inc.

It will end the four-year ownership of a group of local investors led by Brian P. Tierney, the company's chief executive officer. The papers had been owned by Knight Ridder Inc. for more than 30 years before the McClatchy Co. bought them in 2006. They were then quickly sold to the Tierney group.

The new owner is composed primarily of 16 banks and investment firms that held the bulk of Philadelphia Newspapers' $318 million in secured debt. They won the company at auction in April with a bid of $139 million.

Those with the largest ownership shares are Alden Global Distressed Opportunities Fund (18.6 percent), Credit Suisse (18.1 percent), and Angelo, Gordon & Co. (17.2 percent).

The chief opposition to the reorganization plan comes from employee pension funds and a number of individuals who have libel suits against the newspapers and their reporters.

The pension funds oppose the plan because it does not require the new owners to assume liability for the funds. The unions want assurances that, at the very least, the new owners will cover payment of what is known as the "withdrawal liability," which represents a portion of a pension fund's shortfall created when an employer pulls out. The company's withdrawal liability is estimated to be $150 million.

The plan is also opposed by a number of individuals with libel suits against the newspapers because the plan places limits on which suits could go forward against the company or its reporters.

McMichael said discussions were under way to resolve both issues.

Assuming that the plan is confirmed as expected, the new owners will set a closing date for the sale. Under the sale agreement, closing can be as late as Aug. 31. The new owners will use the time between confirmation and closing to negotiate new contracts with the company's 14 unions.