MARYCLAIRE DALE

PHILADELPHIA (AP) ¿ The owners of Philadelphia's two major newspapers are trying to rally support for local management of the business ¿ taking on banks and other creditors that hope to win the company in a bankruptcy auction. And the creditors are trying to get the campaign stopped.

The "Keep It Local!" slogan is blasted in full-page advertisements in The Philadelphia Inquirer and Philadelphia Daily News, on Philly.com's home page and on delivery trucks, buttons and even subscriber bills.

The ads suggest that outside owners ¿ "banks and hedge funds located in New York, Beverly Hills and elsewhere" ¿ would slash news coverage and staff and perhaps close the smaller Daily News. The creditors object to the publicity blitz and want a bankruptcy judge to shut it down. They call the campaign "scare tactics" designed to demonize any outside bidders.

"The debtors have attempted to poison the prospects for any competing bidder ... with the debtors' unionized work force, with advertisers and with the community," a committee for some of the newspapers' creditors said in a filing Wednesday. "This is the antithesis of what the law requires."

A judge Thursday scheduled a hearing on the objection next week.

The two sides have fought bitterly since the owners of The Philadelphia Inquirer, Philadelphia Daily News and Philly.com filed for bankruptcy protection in February, citing about $400 million in debt.

The senior lenders are led by Citizens Bank ¿ which has naming rights on the Philly's baseball stadium but is owned by the Royal Bank of Scotland Group PLC. The group also includes CIT Group Inc. and hedge funds and investment banks, including Angelo, Gordon & Co., which has a Beverly Hills office.

Philadelphia Newspapers LLC, the company that owns both local dailies, proposed the auction in a bankruptcy reorganization plan filed last month. The company called it the best way to shed the onerous debt local investors took on when they bought the newspapers from McClatchy Co. in 2006 for $515 million. Those locals include Bruce Toll, co-founder of homebuilder Toll Brothers Inc., plus a carpenters' union pension fund and Brian Tierney, a former public relations and advertising executive who put the deal together and now serves as publisher and chief executive officer.

A mix of current and new investors ¿ including Toll, the pension fund and an unnamed wealthy Philadelphian ¿ now hopes to win the auction with a bid that pays creditors at most 23 cents on the dollar. Tierney would stay at the helm.

"Local ownership alone is not a panacea," Tierney, 52, acknowledged to The Associated Press this week. But he argues that local owners care more about news coverage and the community.

And he said the company, now worth less than $100 million due to the industry-wide decline in circulation and advertising, needs to shed its "millstone" of debt to remain viable.

"That's the magic formula," Tierney said, "that you're not burdened with more debt than the company's worth."

In exchange for erasing the debt, the local plan would give creditors a package worth $92 million ¿ $37 million in cash, $30 million in real estate, and $25 million needed to exit bankruptcy. The creditors would have no stake in the reorganized company.

The creditors' plan would make them the new owners, wiping out the stake held by Tierney's group. It also would leave the company with $60 million in debt, plus $25 million needed to exit bankruptcy. The creditors also would install a new management team that includes a local of their own, retired publisher Bob Hall. Hall led the Philadelphia newspapers from 1990 to 2003 under Knight Ridder Inc. ownership.

One industry analyst presumes the "Keep It Local!" campaign is steered at one subscriber in particular: Chief U.S. Bankruptcy Judge Stephen Raslavich.

Theoretically, a presiding judge isn't swayed by public opinion.

"But you never know," said John Morton of Morton Research Inc. "It's a shot in the wind. But it certainly won't hurt."

Raslavich must approve the winning bid, in a process expected to wrap up by November. Bids are due Oct. 22.

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