Monday, February 23, 2009

Philadelphia Inquirer Seeks Bankruptcy Protection

Philadelphia Inquirer seeks bankruptcy protection

By Andrew Edgecliffe-Johnson in New York
February 23 2009 07:33
Financial Times

The publisher of the Philadelphia Inquirer has become the second US newspaper group to file for Chapter 11 bankruptcy protection in two days, succumbing on Sunday to vanishing advertising revenues and an unmanageable debt burden.

Brian Tierney, the local public relations executive who led a $562m bid for the Inquirer and the Philadelphia Daily News in 2006, announced the move a day after a similar filing by the Journal Register, publisher of Connecticut’s New Haven Register and scores of smaller titles.

Mr Tierney said the operations of his Philadelphia Newspapers group remained “sound and profitable” before interest payments, and that the planned restructuring would focus solely on its $390m of debt.

”Philadelphia Newspapers’ goal is to bring its debt in line with the realities of the current economic and business conditions,” he said.

The failure of 11 months of negotiations with lenders makes Mr Tierney’s group the latest casualty of a wave of debt-fuelled acquisitions of newspapers by investors hoping to find value in an already beaten-up sector where many saw potential for deeper cost-cutting.

Tribune, the owner of the Los Angeles Times and Chicago Tribune, filed for bankruptcy protection in December, only a year earlier in an $8.2bn leveraged transaction led by Sam Zell, the Chicago property magnate.

The Minneapolis Star Tribune, which announced its Chapter 11 filing in January, had been sold less than two years before for $530m to Avista Capital Partners, a private equity group.

Double-digit declines in advertising revenues in an industry which has seen classified listings all but disappear to the internet and bigger advertisers such as automotive dealers hoard their cash have shaken even the strongest US newspaper brands.

The New York Times last week announced it would suspend dividend payments to preserve cash, just weeks after securing a $250m loan from Carlos Slim, the Mexican telecoms entrepreneur. Quoted publishers, including the Journal Register, have suffered precipitous declines in market value.

Philadelphia Newspapers has not been able to comply with covenants on its loans since last summer, and has incurred $13.4m in penalty interest and fees.

Local investors including Mr Tierney contributed about $150m to the 2006 purchase, promising “the next great era of Philadelphia journalism”, but layoffs and losses soon followed.

Copyright The Financial Times Limited 2009

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