。
She was sorry to hear the bad news.
Literal
She [topic-は] bad news [object-を] heard [and-て] regrettable [in-the-manner-of-に] thought.
残念に思う ('feel disappointed, feel sorry, feel regretful') is the standard frame for expressing one's reaction to bad news. 残念 is a な-adjective; in the adverbial form 残念に + 思う ('think it regrettable'), it produces a personal, internal response. The て-form 聞いて links cause (hearing the news) to reaction (the feeling) — a smooth chain familiar from many emotional-response sentences. The polite ~ました fits formal narration or polite report.