UPDATE 1-Appeals Court upholds bankruptcy credit bid ban

WILMINGTON, Del., March 22 (Reuters) - The Third Circuit Court of Appeals affirmed a lower court ruling on Monday that the bankrupt publisher of The Philadelphia Inquirer newspaper can block lenders from 'credit bidding' in an asset auction, according to court documents.

'We agree with the District Court,' wrote Judge Michael Fisher. He and Judge Brooks Smith voted to affirm the ruling by the District Court. Judge Thomas Ambrose dissented.

'A plain reading of (bankruptcy code) provisions permits the debtors to proceed under subsection (iii) without allowing the lenders to credit bid.'

Philadelphia Newspapers LLC has proposed holding an auction of the company's assets as part of its plan of reorganization. The company proposed that bids must be in cash, preventing holders of $300 million in secured claims from bidding what they are owed, known as a 'credit bid.'

A bankruptcy judge ruled that credit bids must be allowed, which was reversed by U.S. District Judge Eduardo Robreno for the Eastern District of Pennsylvania.

An attorney for the company said the publisher would now seek to schedule an auction by the end of April.

The secured lenders appealed to the Third Circuit Court of Appeals. Their appeal was joined by the Loan Syndication and Trading Association and the Commercial Finance Association.

(Reporting by Tom Hals, editing by Matthew Lewis) Keywords: PHILADELPHIANEWSPAPERS/ ([e-mail]; + 1 302 993-6283; Reuters Messaging [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.