Philly news execs skip raises in bankruptcy case

The chief executive of Philadelphia's two largest daily newspapers pledged Tuesday to roll back a recent $232,000 raise while his company tries to reorganize in bankruptcy court, but lenders questioned whether he should run the debt-heavy business.

Philadelphia Newspapers LLC, which publishes The Philadelphia Inquirer and Philadelphia Daily News, filed for Chapter 11 bankruptcy protection on Sunday, 2 1/2 years after a group of local investors bought the company for more than $500 million.

Chief Executive Brian Tierney and other executives have insisted the company, while strangled by debt payments, remains profitable despite falling circulation and revenues. But some lenders balked at that analysis at Tuesday's initial hearing on the bankruptcy petition and questioned decisions being made by Tierney, a former public relations executive.

"This is not a matter that is just about debt," said lawyer Andrew Kassner, who represents Citizens Bank and other senior lenders.

Kassner lambasted the executives for secretly taking the raises while missing their financial goals. Tierney's 38 percent raise was disclosed in the bankruptcy filing; amid criticism, Tierney and other executives said through their lawyers in court that they will forgo the pay hikes during the proceedings.

"I doubt that if there was an independent board of directors supervising this debtor, that would have happened," Kassner said. "We want this company, this enterprise, to survive. But it cannot continue to be managed in the way it has been."

A management consultant will be brought in, but, to the chagrin of the lenders, his role will be purely advisory.

The company earned $36 million by one accounting measure last year, a figure expected to be at least $25 million in 2009. But that's before interest, taxes and other charges; the privately held company did not disclose its net income figures in the bankruptcy filing.

Although Kassner stopped short of calling for an immediate management change, he said lenders were "troubled by decisions that have been made" and questioned why the newspapers had to turn to bankruptcy court instead of negotiating a deal privately.

Tierney expressed surprise at their dissatisfaction, describing it as a "change of heart."

"For the last several months and up until the moment we filed, they wanted me to stay and offered me a handsome compensation plan and a piece of the company - both verbally and in writing," he said in a statement.

A bankruptcy judge Tuesday approved a plan to let the company continue to operate for the next two weeks, until a scheduled March 9 hearing, although she temporarily blocked a request to pay the company's bankruptcy lawyers as much as $860 an hour during the period.

Meanwhile in New York, Journal Register Co., publisher of the New Haven (Conn.) Register and other newspapers, won approval to continue paying basic operating costs, including employee salaries and benefits and newspaper delivery contracts. Lawyers representing lenders made no objections.

The Yardley, Pa.-based company sought bankruptcy protection a day before the Philadelphia newspapers' filing and said then that JP Morgan Chase & Co. and 26 of the company's 37 lenders had agreed to a reorganization plan to cancel its stock and become a closely held company controlled by its lenders.

Lawyers for the lenders said they were unaware of any objections from any debt holders to that plan, although they did not say why the remaining lenders had yet to sign on.

The next hearing in the Journal Register case was scheduled for March 17.

And on the West Coast, the San Francisco Chronicle joined the lengthening list of imperiled newspapers as its owner set out to purge the payroll and slash other expenses in a last-ditch effort to reverse years of heavy losses.

If it can't reduce expenses dramatically within the next few weeks, New York-based Hearst Corp. said Tuesday it will close or sell the Chronicle, northern California's largest newspaper with a paid weekday circulation of 339,430.

The Philadelphia newspaper company pledged to meet its payroll this week and said it will honor its union contracts and stay in business during the reorganization.

The local investors, a group that includes Tierney and housing mogul Bruce Toll, put up $150 million in cash for the mid-2006 purchase. But some fear the company may now be worth less than half of its $395 million in outstanding debt.

"Everybody's expectation at the time was that this was going to be a good, sound, prudent investment. We were all wrong," said Philadelphia newspapers attorney Lawrence G. McMichael. He blamed the changed outlook on both the national economy and problems specific to the newspaper industry, which has seen readers and advertisers migrate to the Internet.

Besides Journal Register and the Philadelphia newspapers, Los Angeles Times publisher Tribune Co. and owners of the Star Tribune of Minneapolis have made separate Chapter 11 filings for bankruptcy protection amid steep declines in advertising revenue.

Tierney, who did not attend the hearing, saw his pay climb in December to $850,000, an amount a creditor's lawyer called far above the $495,000 industry norm.

Two other executives surrendering their December raises are Vice Presidents Mark Frisby and Richard Thayer, each of whom had been bumped to $475,000, compared with an industry norm of $215,000, lawyer Fred S. Hodara said. Their previous salaries were not known.

"This is a company in need of parental supervision," said Hodara, who represents the steering committee of senior lenders. He rejected the rationale that Tierney, who also serves as publisher, deserved the steep pay hike because he had taken on additional duties since the purchase.

Toll is among a group of about eight investors who have offered to put up $25 million in temporary financing, but only under the condition that Tierney remain at the helm. Lawyers for the creditors oppose that condition. The financing will be discussed at a hearing next month.

The Philadelphia Inquirer began publishing in 1828, and the tabloid Daily News in 1925. U.S. Bankruptcy Judge Jean K. FitzSimon drew a burst of applause when she disclosed that she, too, is a subscriber.

---

Associated Press Business Writer Andrew Vanacore in New York contributed to this story.