Judge denies Philadelphia Newspapers' sale procedures based on credit bid, break-up fee provisions

By Caroline Salls

Pittsburgh, Oct. 8 - Philadelphia Newspapers, LLC's motion for approval of the bid procedures for the proposed sale of the company's assets to Philly Papers, LLC was denied Thursday by the U.S. Bankruptcy Court for the Eastern District of Pennsylvania.

However, the court said the bid procedures could be approved if they are changed to conform to the ruling.

Judge Stephen Raslavich said the animosity between parties in Philadelphia Newspapers' case has been "regrettably, quite high," but that the bid procedures were negotiated extensively to reach a consensus on all issues except the right of the company's lenders to submit a credit bid at the auction, and the stalking horse bidder's entitlement to a $1 million break-up fee and $500,000 expense reimbursement if it is not the high bidder at auction.

Raslavich said he found the company's arguments on both issues to be "unsustainable," and, as a result, neither provision could be approved as part of the bid procedures.

The judge said Philadelphia Newspapers has insisted that any qualified bidder fund its purchase offer with cash, but the lenders plan to submit a competing bid that does not meet this condition.

Instead, the lenders claim the law allows them to set off the amount owed to them by the company against the amount of their bid.

Raslavich said the company disagrees, arguing that the credit bid would chill bidding.

The judge said he agreed with the lenders' claim that the intent of the Bankruptcy Code is to ensure that a secured creditor is entitled to protect its rights to its collateral by credit bidding its debt in a case where an under-secured creditor's collateral is being sold.

"The bidding should not be artificially constrained by contending that doing so will in fact enhance competitive bidding," Raslavich said in his ruling.

"To put it differently, it appears to this court that the facts before it represent the case where the right to tender a credit bid should be an imperative."

In addition, the judge said there is a well-established record in Philadelphia Newspapers' case of the existing equity holders attempting to retain control of the company.

"Despite maintaining that they are extensively marketing their assets to potential bidders throughout the country, the debtors have made no secret whatsoever of their preference for the success of the stalking horse bidder and the perpetuation of local ownership," the ruling said.

"It simply is not credible against this backdrop to contend that the stalking horse bidder required a financial inducement to submit its opening bid.

"It once again cannot credibly be argued that the break-up fee is warranted to compensate the stalking horse bidder for the time and expense it has invested in formulating and submitting its bid."

Philadelphia Newspapers, based in Philadelphia, owns The Inquirer, the Philadelphia Daily News, and Philly.com. The company filed for bankruptcy on Feb. 23, 2009, and its Chapter 11 case number is 09-11204.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.