Lenders to the bankrupt Philadelphia Newspapers LLC have appealed a court decision preventing them from bidding what they are owed in an auction of the publisher's business.
A three-judge panel of the U.S. Court of Appeals for the Third Circuit issued the ruling earlier this month. The lenders requested a hearing by the court's full panel of judges to review the 2-1 ruling, according to court documents.
The ruling was a victory for real estate developer Bruce Toll, who is leading a group of Philadelphia-area investors who want to buy the publisher of the Philadelphia Inquirer and Daily News out of bankruptcy.
The ruling prevents secured lenders from bidding what they are owed, which is known as a credit bid, when the publisher holds an auction of its business as part of its plan of reorganization.
The company has argued the bids must be in cash to determine the market price of the business.
The ruling has potential to set a precedent by strengthening the hand of management of bankrupt companies, giving them added clout in dealing with secured lenders.
The panel decision in this case represents a startling break with decades of established bankruptcy practice and a repudiation of basic principles of bankruptcy law articulated by the Supreme Court and by this Court, attorneys for the lenders wrote in their request for a review.
An attorney for the publisher and attorneys for the secured lenders, which includes Citizens Bank as well investors such as Angelo Gordon & Co and Eaton Vance Management, did not immediately return calls for comment.
The bankruptcy case is In re Philadelphia Newspapers LLC, U.S. Bankruptcy Court, Eastern District of Pennsylvania, No. 09-11204.
The Appeals Court case is In re Philadelphia Newspapers LLC, U.S. Court of Appeals for the Third Circuit, No. 09-4266.
(Reporting by Tom Hals; editing by John Wallace)