Bankruptcy
The Philadelphia Inquirer 's and Philadelphia Daily News ' circulation had been steadily dropping years before Philadelphia Media Holdings bought the papers. In 2007 The Inquirer 's weekday circulation slightly rose, however its Sunday circulation continued to drop. The rise in circulation was only temporary and the newspaper's circulation has since continued to fall.[8][9] Not helping the financial situation is the unexpected large drop in advertisement revenue.[10][11] To help cut cost and repay debt Philadelphia Media Holdings cut jobs at The Philadelphia Inquirer in January 2007, and again at The Inquirer and the Daily News in February 2008.[10][12]
On June 1, 2008, Philadelphia Media Holdings missed its interest payment on US$85 million in junior loans. Philadelphia Media Holdings missed the payment because it didn't maintain debt-to-cash flow ratio its senior lenders required so they blocked the payment. The company began negotiations with its lenders to restructure its debt and in October 2008 Philadelphia Media Holdings deferred paying its interest payment despite having the money to do so.[11][13][14] Charged $13.4 million in penalty interest and fees, Philadelphia Media Holdings continued negotiations with lenders until February 20, 2009, when the talks collapsed. Late the next day Philadelphia Newspapers LLC, the subsidiary of Philadelphia Media Holdings that owns the papers, filed for Chapter 11 bankruptcy protection.[15] Philadelphia Media Holdings hoped to restructure its US$390 million in debt it incurred when buying the newspapers.[16]
The bankruptcy declaration was the beginning of a year-long dispute between Philadelphia Media Holdings and its creditors. The group of creditors, which include banks and hedge funds, wanted to take control of Philadelphia Newspapers LLC themselves and opposed efforts by Philadelphia Media Holdings to keep control. Philadelphia Media Holdings received support form most of the paper's unions and launched a public-relations campaign to promote local ownership.[17] A bankruptcy auction was held on April 28, 2010. The group of lending creditors and a group of local investors allied with Brian Tierney both bid for Philadelphia Newspapers, but the lenders had the winning bid.[18] On May 21, Brian Tierney stepped down as CEO of Philadelphia Media Holdings and was replaced by Joseph Bondi, the company's restructuring adviser.[19]
The deal fell through after the group of lenders, under the name of Philadelphia Media Network, was unable to agree on a contract agreement with the union representing the company's drivers.[20] The papers went up for auction again in September, with Philadelphia Media Network competing with Raymond Perelman, father of Ronald Perelman. Philadelphia Media Network again won the auction and, after successfully negotiating a contract with all of the papers' fourteen unions, the US$139 million deal became official on October 8.[21][22]
