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April 29, 2010 7:02 PM

Lenders Win Battle for Philly Newspapers

Posted by Brian Baxter

Lawyers stayed up all night as a 36-hour bankruptcy auction in the New York offices of Proskauer Rose--the current one; the firm hasn't yet moved into its new digs at 11 Times Square--concluded with creditors taking control of Philadelphia's two major newspapers.

"A group of secured lenders had the highest bid, which will form the basis of our plan of reorganization," says Proskauer bankruptcy partner Mark Thomas, lead debtor's counsel to the estate that owns the Philadelphia Daily News, Philadelphia Inquirer, and Philly.com.

Thomas says a hearing is tentatively scheduled for May 25 to confirm a reorganization plan, with a status report on the auction slated for Friday at 3 p.m. before U.S. bankruptcy judge Stephen Raslavich. The auction, which saw three qualified bidders participate, dragged into the wee hours of the morning Wednesday because of wrangling over initial offers. Once the bidding started, though, it didn't take long for things to heat up.

"We had people sleeping on the couches in the lobby," says Thomas, noting that the actual bidding started at about 3:50 a.m. Wednesday. Lawyers and advisers took a two-hour break at 9 a.m., and then came back and completed the auction at around 4 p.m., Thomas says, adding that the value to the estate increased by more than $35 million by the time the bidding was done.

Fred Hodara, head of the financial restructuring practice at Akin Gump Strauss Hauer & Feld, led a team from the firm advising the winning bidders on their $139 million offer for the publisher. The winning consortium consists of New York-based hedge fund Angelo, Gordon & Co., Alden Global Capital, Venor Capital Management, and Credit Suisse.

The group beat out two other bidders: Canadian investment firm Stern Partners and a group of local Philadelphia investors led by 92-year-old Raymond Perelman, father of billionaire Ronald Perelman. The Philadelphia group tried to mount a last-minute effort to boost its bid, but eventually dropped out as the winning consortium increased its initial offer.

The Stern group was represented by Robert Keach, cochair of the business restructuring and insolvency practice at Maine's Bernstein, Shur, Sawyer & Nelson. The Perelman-led Philadelphia group was advised by Skadden, Arps, Slate, Meagher & Flom restructuring cochair J. Gregory Milmoe.

As previously reported by The Am Law Daily, Raslavich issued an order last month prohibiting creditors from using debt they held in the publisher to take control of the debtor in bankruptcy court. Along with Proskauer, owners of the Inquirer and Daily News turned to Pennsylvania firm Dilworth Paxson to help them navigate Chapter 11 proceedings.

Dilworth had advised former public relations executive Brian Tierney when he bought the two Philadelphia papers from The McClatchy Company for $562 million in 2006. That deal saw the acquirers take on more than $500 million in debt, which Tierney and his investor group defaulted on last year, leading to the publisher's February 2009 bankruptcy filing.

At this point, it's not certain whether or not the editorial staff of the bankrupt publications will be downsized as a result of the acquisition. But after being bogged down in bankruptcy proceedings for the past week, Proskauer's Thomas is looking to catch up on, well, the news.

"I've got to pick up a newspaper now," he says. "I've been out of touch for about five days trying to sell one."

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