INQUIRER: Philadelphia Newspapers L.L.C., which owns The Inquirer, the Philadelphia Daily News, and Philly.com, filed for bankruptcy protection today in a bid to restructure its $390 million in debt load. The company, bought by a group of Philadelphia-area investors for $562 million in 2006, said the voluntary Chapter 11 filing would not interrupt its daily operations.
“This restructuring is focused solely on our debt, not our operations,” chief executive officer Brian P. Tierney, who led the group that provided about $150 million of the purchase price three years ago, said in a news release. “Our operations are sound and profitable,” said Tierney, referring to operating profits before interest and certain other costs.
The financial burden from an advertising downturn, rising costs for newsprint, and the migration of readers to the Internet caused Philadelphia Newspapers to fall out of compliance with its loan agreements last year. The same conditions have devastated the broadcast industry.The company said it decided to turn to Bankruptcy Court after negotiating with its lenders for the last 11 months. During that time, the company was billed $13.4 million in penalty interest and fees.
It is not clear whether the current owners will retain a stake in the company if the debt is successfully restructured with the help of a bankruptcy judge. MORE
NEW YORK TIMES: The owners of The Philadelphia Inquirer and The Philadelphia Daily News filed for bankruptcy late Sunday night after talks aimed at restructuring their heavy debt load broke down, executives said. The papers will continue to operate and will remain under local control, said Brian Tierney, publisher of The Inquirer. He signaled that his company’s primary aim in bankruptcy would be to seek concessions from the consortium of banks that hold its debt, not from the papers’ labor unions. “This restructuring is focused solely on our debt, not our operations,” he said.
The company has been negotiating for the better part of a year with the banks, led by Citizens Bank. It had not been in compliance with its debt covenants since mid-2008, and it suspended payment on the debt last fall. Most recently, executives of Philadelphia Media said the original investors offered to put $25 million into the company, but a meeting with the banks on Friday produced no resolution.
Mr. Tierney, a public relations executive, and his partners paid $562 million for the papers, including about $412 million in borrowed money. There remains about $390 million in debt. Executives say that with debt payments suspended, the papers continue to generate cash flow, in part because of significant cost-cutting. One said that last year, they had earnings before income, taxes, depreciation and amortization of $36 million. Over the months of talks with the banks, Philadelphia Media executives have been frustrated by the consortium charging the company for fees paid to the banks’ lawyers and consultants, and for interest penalties — bills that the newspaper group says total $13.4 million. The executives said they had arranged $25 million in debtor-in-possession loans to continue operations. MORE
WASHINGTON POST: They now join Tribune Co., publisher of the Chicago Tribune, Los Angeles Times and Baltimore Sun, in bankruptcy court, along with the Minneapolis Star Tribune and the Journal Register Co., whose papers include the New Haven Register in Connecticut. MORE
BLOOMBERG: More newspaper companies are in danger, according to Fitch Ratings analyst Mike Simonton in Chicago.“Fitch expects there to be more publishers and lenders that will face this decision in 2009 and 2010,” Simonton said. “There are a number of other troubled publishers that will struggle to stay within their lending covenants, cover their interest payments and repay or refinance maturities as debt comes due.” MORE
DOWNLOAD: Philadelphia Newspapers’ Chapter 11 Filing [PDF]
PHAWKER: ITEM # 12 on pages 6-7 of the Chapter 11 filing (SEE PDF, ABOVE) indicates that Brian Tierney paid himself $600,000 annually as CEO beginning in June of 2006. When the Publisher resigned in August of 2006, Tierney took on all of his job responsibilities — overseeing the day to day running of both papers — and half of his salary, on top of his $600,000 CEO salary, for a grand total of $850,000 by December of 2008. It was in December of 2008 that roughly 30 Philadelphia Newspapers employees were given the axe to cut costs. What is the point of laying off 30 employees to cut costs in the same month you are giving yourself a quarter million dollar raise? Secondly, how do you justify paying yourself almost a million dollars a year when your papers only earn $37 million annually? Thirdly, why is Tierney giving himself a quarter million dollar raise as CEO/Publisher when both papers have performed so poorly as business entities under his leadership? Just wondering.
BLOOMBERG: Five months after buying the publications, Tierney cited weak advertising revenue when eliminating 68 newsroom jobs, or 17 percent of the Inquirer’s editorial staff. In January 2008, Tierney told employees costs had to be reduced by 10 percent to avoid “a dire situation.” MORE
FORBES: Documents filed Sunday by Philadelphia Newspapers LLC and seven affiliates said that the pay of Tierney, a public relations executive who put together the investment group that bought the paper from McClatchy (nyse: MNI – news – people ) in June 2006 for $562 million, was boosted just two months ago by 38% to $850,000. But an affidavit by Richard R. Thayer, executive vice president, finance, said the company was still saving money because Tierney “without an increase in compensation” became publisher of both papers in the fall of 2006 after the $565,000-a-year incumbent resigned. Even though Tierney in January 2008 demanded a 10% cost concession from workers, his own pay was bumped up 3% in May 2008 to $618,000. Then came the big boost around Christmas. MORE
(Tierney & Guild memos after the jump)
From: Tierney, Brian P.
Sent: Sunday, February 22, 2009 11:39 PM
To: All BSCN Employees; All BSM Employees; All PN Employees; All
Philly.com Employees; All PN, BSCN and PHILLY.COM Employees
Subject: Important Notice
To: All PN Employees
Today we took an important strategic step toward restructuring our debt obligations. To do so we have voluntarily filed for relief under Chapter 11 of the U.S. Bankruptcy Code. The most important fact that you need to know about how the Chapter 11 filing affects you is that business will continue as usual. PNL will continue to operate under its current name and logo, and all operations as you know them will remain the same. We have asked the court to permit all salary and benefits, including pensions and 401(k) plans, to continue as usual. The filing has in no way changed your employment terms.
It is important that each of you is not distracted by our Chapter 11 filing. In fact the process exists to assist companies in resolving debt issues. For more than a century, since the U.S. Congress first established the Bankruptcy Code, it has been helping companies, including many of America’s largest, to reorganize and thrive. The impetus for filing for reorganization is not due to problems with PNL’s operations, but a need to repair our debt structure. The loss of revenue that has occurred as a result of the current recession is squeezing our operating profit which is now insufficient to service our debt load.
As a company, we have been hit with a perfect storm, including a dramatic decline in total revenue, the worst economic conditions since the Great Depression and a debt structure which is out of line with current economic reality. Despite these difficult circumstances, we have been working towards an operational structure that can flourish once we get the debt restructured.
Now more than ever, we need to continue the hard work that has already begun. I am grateful for, and proud of, your dedication and loyalty to our company and to our readers. In the last two and a half years, we have accomplished a tremendous amount. Our journalism is better than ever under the guidance of Bill Marimow and Michael Days. Our union relationships have moved from contentious to a relationship built on respect and trust. Our online web traffic at philly.com has swelled by 300%. Our new, nationally recognized programs, like MediaLab and ResearchLab, are connecting our marketing muscle — and the industry’s most innovative approach — directly with advertisers’ businesses. We’ve introduced new products like “I” Magazine and improved My Community Trend. We’ve been ranked as among the most efficient newspaper operators in the country. And, despite an overall decline in ad revenue, we have climbed from the bottom to the top of the pack in advertising revenue among the Top 25 markets.
It is important that you provide reassurance to the advertisers, readers and business contacts with whom you interact that PNL continues to do business as usual, remains a viable company and is only using Chapter 11 reorganization to restructure its debt. Your commitment is crucial to our ability to move forward seamlessly. You should contact the Human Resources Department if you have any questions.
We encourage you to give us the feedback that you are getting from your advertisers and readers and other business contacts so that we can assist you in providing this reassurance. To assist in such communications, as well as to answer any questions that you may have, we will distribute a “Frequently Asked Questions” memorandum for all employees shortly. In addition, we will provide regular updates on the timing and status of the Chapter 11 reorganization.
Thank you in advance for your continued hard work and dedication to our
readers and advertisers.
—– Original Message —–
From: GuildBulletin REDACTED
To: GuildBulletin <email@example.com>; REDACTED
Subject: Philadelphia Media Holdings Files for Chapter 11 Bankruptcy Protection. What Members Should Know…
Dear Guild Member,
As you all should be aware, Philadelphia Media Holdings, (“PMH”), the owner of the Philadelphia Inquirer and The Daily News, has filed for Chapter 11 Bankruptcy protection.
As hard as it may sound, please stay calm. The company is still in business, the papers are still publishing and you should still report for work.
Here is what this means to our members and how the filing affects our contract:
The Chapter 11 Bankruptcy process is intended to permit a company to continue in operation by restructuring its contractual and financial obligations. Because Guild members provide essential services, your wages and benefits under our collective bargaining agreement for services rendered, after the petition was filed, will continue to be honored.
Before PMH can take any action to modify any of its obligations under our contract, it must negotiate in good faith with the Guild and prove that the contract changes it seeks are necessary to permit the reorganization and prevent the liquidation of the enterprise.
The Guild Executive Board has already taken steps to assure that we obtain all of the bankruptcy filings. We will monitor the proceedings and take appropriate action to enforce our collective bargaining agreement and protect your rights.
Even though a bankruptcy petition has been filed:
* Our contract remains in full force;
* Your wages and benefits will continue to be paid;
* We retain the right to grieve and arbitrate contract disputes; and
* No unilateral changes to our contract can be implemented without prior negotiations.
If the Employer requests that we meet to negotiate contract modifications, we will, of course, immediately notify you of any such negotiations. As in all collective bargaining situations, we will bring any tentative agreements involving modifications/changes to our contract to the members for ratification. In addition, we will keep you advised of all developments during the bankruptcy, especially any events that involve the Guild contact, your rights, and the Employer’s obligations pursuant to it.
The Guild’s Executive Committee will convene in an emergency board meeting at 10 a.m. Monday and will issue further news as we have it. In the meantime, members may contact the Guild office at REDACTED