• by Erik Sass  @eriksass1, August 12, 2009

Chief U.S. Bankruptcy Judge Stephen Raslavich is telling opposing sides in Philadelphia Newspapers' ongoing bankruptcy negotiations they need to come to the table with realistic compromises, or face the one outcome no one wants: shuttering of The Philadelphia Inquirer and the Philadelphia Daily News.

Philadelphia Newspapers, the company organized by former ad executive Brian Tierney to buy The Philadelphia Inquirer and the Philadelphia Daily News from McClatchy in 2006, filed for Chapter 11 bankruptcy protection in February.

Since then, the company has been stuck in negotiations with its various creditors over the bankruptcy reorganization plan. On one side, Philadelphia Newspapers has suggested a plan that would raise $35 million in new capital to clear almost $400 million in debt, leaving the company with about $35 million in debt.

Creditors have rejected this plan as offering far too little compensation -- but the creditors' counterproposal, under which the company would still carry $85 million in debt, has also been rebuffed, leaving the reorganization process at an impasse.

At issue is the future ownership and leadership of the company. The creditors, who previously seemed willing to negotiate with the publisher to avoid default proceedings, now seem to be trying to maneuver Tierney and his management team out and take control of the company directly.

On Tuesday, Judge Raslavich reproved both sides for failing to come up with viable compromises, observing that "to one degree or another, everyone involved ... is overplaying their hand," according to a report by the Associated Press.

The company must present a reorganization plan for approval by the bankruptcy court by August 31, when it must also begin negotiating a new contract with the union representing editorial and advertising staff.