Bankruptcy Judge Rejects Alternate to Tribune Reorganization Plan

By: Randall Chase

A federal judge overseeing Tribune Co.’s bankruptcy case refused Tuesday to let a group of creditors file an alternative to the media company’s reorganization plan.

The decision means that, at least for now, proceedings in the case will center around the reorganization plan that Tribune filed Monday, one that already has come under fire from two groups of creditors.

Creditors in one group — the lenders who claim they are owed more than $3.6 billion under a 2007 secured credit agreement — are criticizing Tribune’s plan even though they would share ownership of the company alongside JPMorgan Chase and other lenders.

Those credit lenders, who were denied the right to file an alternative plan, argued that Tribune’s plan would deprive them of more than $400 million because that money would go to unsecured creditors with whom Tribune reached a settlement that cleared the way for the filing of its plan.

The credit lenders include hedge fund Oaktree Capital Management, Goldman Sachs Loan Partners and Marathon Asset Management. They had sought permission to file their own plan even before Tribune submitted its.

A hearing has been scheduled for May 20 to consider approval of the disclosure statement accompanying Tribune’s plan. The law requires such disclosures so that claimants have the information they need to make informed judgments about a reorganization plan.

Bruce Bennett, an attorney for the credit lenders, described Tribune’s settlement with other creditors as a “triumph of expediency” over a concerted effort to find a reasonable resolution to competing claims in the 16-month-old bankruptcy case.

“How do you make sense of this when you get to the bottom line and it’s our constituents paying money?” he asked Judge Kevin Carey, who must sign off on the settlement and the reorganization plan.

Bennett said filing a competing plan wouldn’t significantly delay the case.

“We will move very quickly, but we will provide choices,” Bennett told the judge. “We will provide better choices.”

But Carey declined to let those creditors file a competing plan.

He noted the progress that Tribune and other parties have made in getting a reorganization plan filed, though he hinted Tuesday that he may appoint an independent examiner to look at certain issues, including the 2007 leveraged buyout that was engineered by real estate mogul Sam Zell and left the company mired in debt.

Under Tribune’s plan, JPMorgan and distressed-debt specialist Angelo, Gordon & Co. would be among the new owners of the company’s media properties, which include Los Angeles Times, the Chicago Tribune, other daily newspapers and broadcast stations.

The Tribune Co. has seen revenue fall because of reduced spending in the recession and the inability of media companies to command as many ad dollars online as they do in print.

Similar cash-flow problems have caused more than a dozen other U.S. newspaper publishers to also seek bankruptcy protection, and many of them have already emerged from Chapter 11. The Tribune case has been complicated by allegations of fraudulent conduct in financing the 2007 buyout.

One group of creditors — junior bondholders represented by Wilmington Trust Co. — alleged in a lawsuit last month that JPMorgan, Bank of America and other banks that financed the buyout engaged in fraudulent conduct because they knew the debt load would leave Tribune insolvent. Those creditors hold $1.2 billion in Tribune bonds that they stand to lose completely in the case.

Under Tribune’s plan, major lenders such as JPMorgan would hold a 91 percent stake in Tribune worth about $5.56 billion, based on the company’s appraisal of its value.

Centerbridge Partners, which leads a group that owns outstanding senior bond debt, would get a 7.4 percent stake, paid in a combination of cash, stock and debt under the plan. That would translate to about $451 million, or roughly 35 cents for every dollar owed to the senior noteholders.

Existing shareholders, including Zell, his investment fund and the company’s employee stock ownership plan, would be wiped out.

Tribune filed its plan after announcing last week that it had come to an agreement with Centerbridge Partners to settle any potential claims that it might have brought related to the buyout. JPMorgan and Angelo, Gordon also agreed to the settlement, as did Tribune’s committee of unsecured creditors.

The Wilmington Trust bondholders, who would be left with nothing under the company’s reorganization plan, filed a motion in January asking the judge to appoint an examiner to investigate the buyout and other issues.

William Harrington, an attorney for the U.S. trustee, supported such an examiner, arguing Tuesday that it could bring much-needed efficiency to Tribune’s bankruptcy case and resolve suspicions surrounding Tribune’s treatment of various creditor groups.

The judge was poised to proceed with a hearing on the bondholders’ request, but postponed it until April 22 at Tribune’s suggestion.

James Conlan, an attorney for Tribune, said he would work to try to include the bondholders in the settlement the company has reached with other creditors, or at least try to agree on the scope of the examiner’s work.

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