In Re Philadelphia

599 F.3d 298

In re PHILADELPHIA NEWSPAPERS, LLC, et al. Citizens Bank of Pennsylvania; Steering Group of Prepetition Secured Lenders, Appellants. In re Philadelphia Newspapers, Inc., Official Committee of Unsecured Creditors, Citizens Bank of Pennsylvania; Steering Group of Prepetition Secured Lenders, Official Committee of Unsecured Creditors, Appellant.

No. 09-4266

No. 09-4349.

United States Court of Appeals Third Circuit.

Argued: Dec. 15, 2009.

Decided: March 22, 2010.

As Amended May 7, 2010.

COPYRIGHT MATERIAL OMITTED

David F. Abernethy, Andrew J. Flame Andrew C. Kassner, Alfred W. Putnam, Jr. (Argued), Drinker, Biddle & Reath, Philadelphia, PA, for Appellant/Cross Appellee Citizens Bank of Pennsylvania.

Alex Freeman, Fred S. Hodara, Abid Qureshi (Argued), Akin, Gump, Strauss Hauer & Feld, New York, NY, L. Rachel Helyar, Akin, Gump, Strauss, Hauer &amp Feld, Los Angeles, CA, for Appellant/Cross Appellee, Steering Group of Prepetition Secured Lenders.

Kerry A. Brennan, Rick B. Antonoff, Pillsbury, Winthrop, Shaw & Pittman, Elliot Ganz, Loan Syndications and Trading Association, New York, NY, for Amicus Loan Syndications and Trading Association in support of Appellants.

Jonathan N. Helfat, James M. Cretella, Otterbourg, Steindler, Houston & Rosen, New York, NY, Richard M. Kohn, Ronald Barliant, Goldberg Kohn, Ltd., Chicago, IL, for Amicus Commercial Finance Association in Support of Appellants.

Ann M. Aaronson, Lawrence G. McMichael (Argued), Dilworth Paxson, Philadelphia, PA, for Appellees, Philadelphia Newspapers, LLC, et al.

Ronald S. Gellert, Brya M. Keilson, Gary M. Schildhorn, Eckert, Seamans, Cherin & Mellott, Philadelphia, PA, Ben

H. Logan, III (Argued), O'Melveny & Myers, Los Angeles, CA, for Appellee/Cross Appellant, Official Committee of Unsecured Creditors.

Before AMBRO, SMITH and FISHER, Circuit Judges.

OPINION

FISHER, Circuit Judge.

We are asked in this appeal to decide whether Section 1129(b)(2)(A) of the Bankruptcy Code requires that any debtor who proposes, as part of its plan of reorganization, a sale of assets free of liens must allow creditor's whose loans are secured by those assets to bid their credit at the auction. Because subsection (iii) of Section 1129(b)(2)(A) unambiguously permits a debtor to proceed with any plan that provides secured lenders with the "indubitable equivalent" of their secured interest in the assets and contains no statutory right to credit bidding, we will affirm the District Court's approval of the proposed bid procedures.

I.

Philadelphia Newspapers, LLC (the "Debtors¹") own and operate the print newspapers the Philadelphia Inquirer and Philadelphia Daily News and the online publication philly.com. The Debtors acquired these assets in July 2006 for $515 million as part of an acquisition of the businesses by an investor group led by Philadelphia PR executive, Brian Tierney $295 million of this purchase price came from a consortium of lenders who are col lectively the appellants in this action (the "Lenders").² This loan was made pursuant to a Credit and Guaranty Agreement dated June 29, 2006, between the Lenders and the Debtors (the "Loan Agreement"). The Loan Agreement and other loan documents provide that the Lenders hold first priority liens in substantially all of the Debtors' real and personal property. The present value of the loan is approximately $318 million.

The Debtors were in default under covenants in the Loan Agreement as of December 31, 2007, and defaulted on a loan payment in September 2008. All of the Debtors besides PMH Holdings filed voluntary petitions under Chapter 11 of the Bankruptcy Code on February 22, 2009. PMH Holdings, the parent company, filed in June 2009. Currently, the Debtors control their businesses and property as debtors in possession.

On August 20, 2009, the Debtors filed a joint Chapter 11 plan of reorganization (the "Plan"). The Plan provides that substantially all of the Debtors' assets will be sold at a public auction and that the assets would transfer free of liens. Debtors simultaneously signed an asset purchase agreement with Philly Papers, LLC (the "Stalking Horse Bidder"). A majority interest in the Stalking Horse Bidder is held by the Carpenters Pension and Annuity Fund of Philadelphia and Vicinity ("Carpenters") and Bruce Toll. The Carpenters own approximately 30% of the equity in debtor PMH Holdings, LLC and Toll owned approximately 20% of the equity in PMH Holdings, LLC until the day before the asset purchase agreement was signed.

Under the Plan, the purchase will generate approximately $37 million in cash for the Lenders. Additionally, the Lenders will receive the Debtors' Philadelphia headquarters which the Debtors have valued at $29.5 million, subject to a two-year rent free lease for the entity that will operate the newspapers. The Lenders would receive any cash that is generated by a higher bid at the public auction.³

The Debtors filed a motion for approval of bid procedures on August 28, 2009. As part of the motion, the Debtors sought to preclude the Lenders from "credit bidding" for the assets.⁴ Instead, the Debtors insisted that any qualified bidder fund its purchase with cash. In their motion to the Court, Debtors stated the basis for their procedures:

The Plan sale is being conducted under section 1123(a) and (b) of the Bankruptcy Code, and not section 363 of the Bankruptcy Code. As such, no holder of a lien on any asset of the Debtors shall be permitted to credit bid pursuant to section 363(k) of the Bankruptcy Code.

(App.1291.) Objections to the motion were filed by the Lenders, the Creditors' Committee, the Office of the United States Trustee, the Pension Benefit Guaranty Corporations, and other creditors and debtor pension plans.

On October 8, 2009, the Bankruptcy Court issued an order refusing to bar the lenders from credit bidding. In re Philadelphia Newspapers, LLC, No. 09-11204, 2009 WL 3242292 (Bankr.E.D.Pa. Oct. 8, 2009). The Court reasoned that while the Plan proceeded under the "indubitable equivalent" prong of § 1129(b)(2)(A)(iii), it was structured as a § 1129(b)(2)(A)(ii) plan sale in every respect other than credit bidding. Reading § 1129(b)(2)(A) in light of other provisions of the Code—specifically §§ 363(k) and 1111(b)—the Court determined that any sale of the Debtors' assets required that a secured lender be able to participate in a sale by credit bidding its debt.

The Bankruptcy Court then approved a revised set of bid procedures without the ban on credit bidding on October 15, 2009. The revised bid procedures specifically allowed the Lenders to bid their secured debt up to $318,763, 725. The Bankruptcy Court's ruling was appealed to the District Court.

On November 10, 2009, the District Court reversed the Bankruptcy Court. In re Philadelphia Newspapers, LLC, 418 B.R. 548 (E.D.Pa.2009) [hereinafter Dist. Ct. slip op.]. It disagreed with the Bankruptcy Court's interpretation of § 1129(b)(2)(A) and held that the Code provides no legal entitlement for secured lenders to credit bid at an auction sale pursuant to a reorganization plan.

The District Court relied on the plain language of § 1129(b)(2)(A), which provides three distinct routes to plan confirmation—retention of liens and deferred cash payments under subsection (i), a free and clear sale of assets subject to credit bidding under subsection (ii), or provisionof the "indubitable equivalent" of the secured interest under subsection (iii). The Court reasoned that these three routes were independent prongs, separated by the disjunctive "or, " and therefore each was sufficient for confirmation of a plan as "fair and equitable" under the Code. Because the right to credit bid was not incorporated into subsection (iii), as it was in subsection (ii), Congress did not intend that a debtor who proceeded under the third prong would be required to permit credit bidding. Instead, subsection (iii) required only that a debtor provide secured lenders with the "indubitable equivalent" of their secured interest in the assets. The District Court pointed out that this broad language served as an "invitation to debtors to craft an appropriate treatment of a secured creditor's claim, separate and apart from the provisions of subsection (ii)." Dist. Ct. slip op. at 568. As such, "a plan sale is potentially another means to satisfy this indubitable equivalent standard." Id. at 568-69.

The District Court's order was appealed to us along with a motion for a stay. We granted the stay on November 17, 2009, pending resolution of this appeal on the merits.

II.

The District Court had jurisdiction under 28 U.S.C. § 158(a)(3) over the appeal from the Bankruptcy Court, ⁵ which had jurisdiction under 28 U.S.C. § 157(b). We have jurisdiction under 28 U.S.C. § 158(d).

We exercise plenary review over the District Court's conclusions of law, including matters of statutory interpretation. In re Tower Air, Inc., 397 F.3d 191, 195 (3d Cir.2005) (citing In re Prof'l Ins.Mgmt, 285 F.3d 268, 282-83 (3d Cir. 2002)). Because the District Court sat as an appellate court to review the Bankruptcy Court's ruling, we review the Bankruptcy Court's legal determinations de novo, its factual findings for clear error, and its exercises of discretion for abuse thereof. Id. (citing In re Engel, 124 F.3d 567, 571 (3d Cir.1997)).

III.

Chapter 11 of the Bankruptcy Code strikes a balance between two principal interests: facilitating the reorganization and rehabilitation of the debtor as an economically viable entity, and protecting creditors' interests by maximizing the value of the bankruptcy estate. See In re Integrated Telecom Express, Inc., 384 F.3d 108, 119 (3d Cir.2004) (citing Bank of Am Nat'l Trust & Sav. Ass'n v. 203 N. LaSalle St. P'ship, 526 U.S. 434, 453, 119 S.Ct 1411, 143 L.Ed.2d 607 (1999)). In furtherance of those objectives, the Code permits a debtor preparing a Chapter 11 reorganization plan to "provide adequate means for the plan's implementation" including arranging for...