Philadelphia Inquirer, New Haven Register file for Chapter 11

In a further demonstration that the newspaper industry is among the worst hit by the US recession, two Philadelphia newspaper groups filed for bankruptcy protection last week. Philadelphia Newspapers LLC, the owner of the Philadelphia Inquirer and the Philadelphia Daily News, as well as Journal Register Co, which publishes 20 daily and 159 other newspapers including the New Haven Register, have both filed for Chapter 11 proceedings.

They join seven other units, including Philadelphia Media, PMH Acquisition, Philly Online and PMH Holdings, which have also filed for Chapter 11 protection. All of them have cited a slump in advertising revenues as the main reason.

The financial burden from an advertising downturn, rising costs for newsprint, and the migration of readers to the Internet caused Philadelphia Newspapers to fall out of compliance with its loan agreements last year. The same conditions have devastated the broadcast industry.

The company said it decided to turn to Bankruptcy Court after negotiating with its lenders for the last 11 months. During that time, the company was billed $13.4 million in penalty interest and fees.

It is not clear whether the current owners will retain a stake in the company if the debt is successfully restructured with the help of a bankruptcy judge. Ideally, a restructuring would reduce the amount of debt and lower the interest rate.

Philadelphia Newspapers was created in June 2006, when Brian Tierney and his partners, including Bruce Toll, co-founder of homebuilder Toll Bros, bought the titles from McClatchy Co for $562 million. The newspapers were among 12 former Knight Ridder Inc newspapers that McClatchy Co sold after acquiring the chain for $4.1 billion.