Philly Newspapers Auction Held Without Credit Bids in Play, Creditors Win Anyway

Creditors to Philadelphia Newspapers LLC fumed that courts disallowed their plan to use a credit bid tactic to buy the publishing group's assets. They did so again when another judge opted against delaying the bankrupt company's auction while it appealed the original ruling.
But, despite the setbacks, the group won out without any controversial tactics.

A creditors group including Angelo, Gordon & Co. and a division of Credit Suisse purchased assets of the publisher, which operates the Philadelphia Inquirer and Philadelphia Daily News, at a total of nearly $139 million, $105 million of which was in cash, on April 28. The auction winners beat out at least two other groups, including one spearheaded by real estate mogul Bruce Toll, of Toll Brothers.

Though the sale likely will lead to a quick emergence from its bankruptcy status -Philadelphia Newspapers' next bankruptcy court hearing is slated for late May-the creditor group still faces some rough sledding. Among problems awaiting Angelo, Gordon & Co. are unions threats of strikes over potential newsroom cuts, a newspaper industry continuing to hemorrhage money for several years and a combative relationship with standing chief executive, Brian Tierney, who publicly alleged the creditors' request to delay the auction was an attempt to sabotage and financially cripple Philadelphia Newspapers.

Angelo, Gordon & Co. originally planned to use debt owed to it by Philadelphia Newspapers in large part as its offer, instead of cash, to buy the newspaper publisher in a process called credit bidding. The method has become increasingly common in the present era of fast-paced and/or pre-negotiated bankruptcies. However, credit bidding has created controversy because some attorneys and experts, such as Standard & Poor's, believe the practice can be used to force an owing party to sell quicker and for a lower price than desired because of leveraged threats by creditors. S&P claims the process essentially "sets a floor price to an auction" and discourages a "robust auction process."

Angelo, Gordon & Co. was forced instead to put up a majority of their offer in cash after being rebuffed by judges in the U.S. Court of Appeals Third Circuit. Analysts said the rulings helped promote fair, even-ground status for all parties that bid on the Philadelphia Newspaper assets in the late April auction.

Brian Shappell, NACM staff writer

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