Newspapers argue lenders must reveal debt-holdings
In court documents filed this week, Philadelphia Newspapers L.L.C. and its largest creditors argued anew over whether the company had a right to know how much debt each lender held and at what price it was purchased.
In court documents filed this week, Philadelphia Newspapers L.L.C. and its largest creditors argued anew over whether the company had a right to know how much debt each lender held and at what price it was purchased.
From the company's position, the information is central to establishing a fair-market value for the media firm, which owns The Philadelphia Inquirer, The Philadelphia Daily News and Philly.com.
Its senior lenders contend the demand is designed to keep them from bidding on the company, thus promoting the chances of the current management retaining control.
Both sides agree that the issue, which is now before Chief Bankruptcy Judge Stephen Raslavich, will play a role in ultimately deciding the outcome of the company's proposed reorganization plan.
The plan calls for the company to give its senior lenders about $67 million in cash and property to settle $318 million in debt. The plan also calls for the company to be put up for auction to determine if the $67 million represents a fair value for the firm.
The company contends that knowing how much its senior lenders paid for the debt they now control is another way to determine the firm's market value. For instance, if the debt was selling for 20 cents on the dollar - a figure reported by a lawyer for the creditors in February - then the company could be worth as little as $63 million. In that case, the $67 million company offer would seem more than fair.
In seeking the information, the company argued that bankruptcy rules compel lenders to provide it.
And, the company argued, the importance of those rules has grown in magnitude with the current economic crisis.
"Experts' lists of causes of the crisis are infinite, but every list cites the systemic failure of lending institutions to disclose meaningful and comprehensible information regarding the securities they owned . . . " the company said in it brief filed late Tuesday. "Greater transparency . . . is time and again cited as a prerequisite to financial recovery."
The lenders, in their counter-argument, contended the company had less lofty goals in mind when it sought the debt information.
Rather, according to the lenders, the company was seeking to promote the interests of a local group of investors that is seeking to purchase the firm at auction. The group 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 paper when it was purchased in 2006.
The senior lenders argued in their brief that some key debt-holders, including Angelo, Gordon & Co., would find the requirement a threat to their financial interests.
At a hearing last month, Kirk Wickman, Angelo Gordon's chief administrative officer, testified that his firm considered such information "confidential." If made public, it would reveal his firm's trading strategies to competitors, he said.
If forced to make such information public, key lenders might decide against bidding on the company at auction, according to the creditors' brief.
Raslavich, who heard oral arguments on the issue last month, has not indicated when he will rule.
