Philadelphia newspapers file bankruptcy

Philadelphia Newspapers LLC, which owns The Inquirer and the Daily News and Philly.com, filed Chapter 11 bankruptcy protection this weekend. According to Bloomberg, it was one of two newspaper publishers in the Philadelphia region to file bankruptcy this week.

Philadelphia Newspapers, in its bankruptcy filing yesterday, and the Journal Register Co., a Yardley, Pennsylvania-based newspaper chain that filed for bankruptcy Feb. 21, said they will try to reduce what they owe lenders, using court protection to shield them while they restructure.

Philadelphia Newspapers’ noteholders hold debt that isn’t backed by any of the company’s assets. That means lenders owed $297 million must be paid in full before the noteholders can collect anything.

For the company owners to get back their equity, both the lenders and the noteholders must receive full payment, according to bankruptcy court rules.

In court papers, Philadelphia Newspapers said the value of the company and its assets is “almost certainly far less than the amount of the outstanding debt.”

Newspapers have hit a hard wall as the economy continues to suffer and the Internet continues to grow. The New York Times says newspaper revenue have dropped 20 percent in the past two years.

The sale of the Philadelphia papers was one of a flurry of deals made in the two years before the recession began, with buyers — many of whom had no background in the field — paying prices for newspapers that were called exorbitant even at the time. Revenue for most newspapers has dropped more than 20 percent since then, leaving the new owners struggling with debt.

The Tribune Company, which was taken private in December 2007 by Sam Zell, a real estate mogul, filed for bankruptcy less than a year later. The Minneapolis Star Tribune, bought in late 2006 by Avista Capital Partners, a private equity firm, filed for bankruptcy last month. (The Journal Register Company, which was not part of the buying spree of a few years ago, filed for bankruptcy on Saturday.)

The McClatchy Company bought the Knight Ridder chain in 2006, and has struggled with the debt from that deal. McClatchy quickly sold some of its papers, including those in Philadelphia and Minneapolis.

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.

Newspapers are just starting to feel the problems. Brian Tierney, owner of Philadelphia Newspapers, said the company will not seek stimulus money.  According to CNN Money, the Chicago Sun-Times is also going through a rough patch. Other companies also have hit hard times.

In Seattle, Hearst Corp. recently put the Seattle Post-Intelligencer, which is part of a joint operating agreement with the Seattle Times, up for sale. The company said Jan. 9 that if the paper was not sold within 60 days, it will either be turned into an Internet-only publication with a drastically reduced staff or it will be closed.

Last week, the New York Times blog Room for Debate had a great post about battle plans for newspapers.

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