Brian Tierney told me Thursday morning in a phone interview that he sees little prospect of Philadelphia Newspapers Inc. making more than a nominal profit this year and next. Still, he is doubling up efforts to keep control of the company as its bankruptcy case winds through the courts.
Does any of that matter to the banks and the court? I asked.
"I wouldn't presume to speak for the judge," Tierney replied. But, he said, the court can apply other criteria -- what's best for the enterprise and employees -- as it considers what is the best deal for creditors.
Tierney has argued that the secured lenders' counterproposal, which so far is only in the talking stages, probably will load the company with more new debt than it will be able to carry with depressed earnings. The creditor takeovers of The Star Tribune of Minneapolis and Journal Register Company are flawed in this way, he said: They are debt-heavy and were presented to the courts with wildly optimistic ad revenue estimates for 2010.
The parties have negotiated throughout the week to move the case along, and some ground rules should be set during a hearing Friday. But Tierney told me that he doesn't expect to know who will control the company until at least November.
Tierney said that the Philadelphia newspapers stand to make about $10 million or $11 million this year, a meager profit margin of roughly 3 percent. He thinks advertising revenues are likely to decline another 10 percent next year. He conceded he'll have to deal with that by finding still more savings on operations and labor costs. The company also needs a $15 million summer-doldrums operating loan right now, Tierney said, and he has secured a commitment for it.
He also clarified a confusing point in some reports on the bankruptcy. His reorganization plan calls for him to remain as CEO, and it relies on several of the same moneyed Philadelphians (notably homebuilder Bruce Toll) whom he put together
to buy the paper from McClatchy for roughly $562 million in 2006. But it's not the same complete collection of investors as the first time.
So, some of the investors wiped out the first time (they've written off their first investment) are re-upping for a second shot. Tierney, who put up $10 million of his own money the first time, is not one of those --
though he also wouldn't pay himself a salary under the new plan.
The new group includes "Penn Matrix," whom Tierney cryptically described to me as a very well-off guy. No, his name is not Penn Matrix. That's
the name of an entity without a public footprint, financed by one wealthy patron who prefers anonymity for the time being.
The new mystery investor adds another element of intrigue to the unusually complex and contentious proceedings. For example, still in play, mostly as a bargaining chip, is
the secret taping of a confidential negotiating session by one of the creditors' representatives (who clumsily left the recorder under a stack of papers).
Since the firm of
Angelo, Gordon, & Co., the leader of the secured creditors, has not answered calls from me,
The New York Times or any other media, I turned to a source who works on the operations end of many newspaper bankruptcies (and thus requested anonymity) for some counterarguments to Tierney's.
Though Philadelphia is not one of his deals, the source said, the secured lenders' pitch will likely be a higher offer, even if it includes substantial, new, long-term debt, and an operational plan more ruthless than Tierney's.
Tierney argues that he has done, and will continue, a good job "balancing journalism with needed financial action."
Meanwhile, in other newspaper bankruptcies:
- The Star Tribune deal is done and any day now the paper will pass to a lender's group, which will name a new board of directors and publisher and begin restructuring operations.
- Ben Eason of Tampa lost control of the Creative Loafing chain of alt weeklies to his biggest creditor, Atalaya Capital Management. The judge conducted a final auction earlier this week (a scenario that could transpire eventually in Philadelphia) and Atalaya, with deeper pockets, doubled Eason's bid.
- Tribune Co. has nearly completed a deal to sell the Cubs and Wrigley Field for roughly $800 million. A negotiated agreement in which creditors take over the company and oust Sam Zell and his team seems likely, but not before the proceedings play out for a few more months.
It all puts me in mind of Tolstoy's famous dictum that "
every unhappy family is unhappy in its own way." And the Philadelphia story, in which I have some emotional investment, having worked there from 1977 to 1982, is proving the most distinctive and compelling of them all.
