By: Mark Fitzgerald
Brown Publishing Co. and its biggest bank lender Wednesday accused unsecured creditors of making last-minute, unsubstantiated claims in seeking to prevent the bank from using its debt to bid on the bankrupt Cincinnati-based newspaper publisher.
In separate papers filed in U.S. Bankruptcy Court in Central Islip, N.Y., Brown Publishing Co. (BPC) and PNC Bank said there was no merit to claims by the official committee of unsecured creditors that the debt taken on by entity owned by Brown Publishing CEO Roy Brown and other company insiders made the deal a “fraudulent conveyance,” that is, the entity, Brown Media Holdings Co., was insolvent from day one, PNC Bank knew it, and therefore it shouldn’t be allowed to use its debt to make a “credit bid” for Brown Publishing 15 dailies and numerous other papers and business publications.
“The committee has not provided any evidence to substantiate its claims,” the PNC filing said. “Rather, the conclusions reached by the committee in the motion rely solely on the unfounded hope that the lenders’ liens and perfected security interests in BMHC’s assets constitute fraudulent transfers.” In fact, the loans BMHC accepted responsibility for, along with other Brown companies, did provide value to BMHC and therefore cannot be used to prevent PNC from making a credit bid.
PNC is owed more than $74 million by Brown Publishing, and has said it will make a $20 million credit bid for the company by the bid deadline of this Friday.
Roy Brown’s three-year-old separate company, Brown Media, has made an opening bid of $15.9 million for BPC, which claimed a book value of $94.1 million when it filed for bankruptcy May 1. BPC listed $104.6 million in debts.
Judge Dorothy Eisenberg has previously approved an auction sales plan that would allow PNC to make a credit bid, and without putting up a 5% cash deposit required of other bidders, including Roy Brown’s group. But after the unsecured creditors filed on Monday asking for a hearing on prohibiting a credit bid, the judge quickly agreed. The hearing is set for Thursday July 15.
The unsecured creditors say allowing PNC to bid up to $74 million in credit alone has a chilling effect on other potential bidders for the newspapers.
Brown Publishing said in its filing that the unsecured creditors, who stand to get nothing from a sale of the company, had not presented any evidence that a credit bid was chilling interest in the company. The unsecured creditors have argued in past court documents that the pre-bankruptcy sale was structured to discourage bidding interest because the company with many widely separated clusters of publications was offered for sale as a whole rather than piecemeal. They noted, too, that a separate Brown family company owns the actual real estate and office and production facilities for many of its publications and leases them to the Brown Publishing publications.
But Brown Publishing argued that time was of the essence in proceeding with the auction.
“Here, too, the debtors are not assured of surviving as going concerns beyond July 30, 2010, when their DIP (debtor in possession) financing will expire,” the filing says. ”Therefore, it is critical that the debtors realize the highest and best offers for their assets before that time, and the First Lien Lenders (PNC Bank) credit bid increases the debtors likelihood of doing so.”
PNC said the bankruptcy court “should not sanction the ‘ambush’ tactics of the committee, allowing them to create ‘emergencies’ requiring hearings on the day prior to one of the most critical days of these bankruptcy cases – the debtors’ bid deadline.”