Early On, Bank Refused ?Solvency Opinion? on Zell?s Tribune Co. Deal

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By: E&P Staff

Back in March 2007, the Los Angeles-based bank Houlihan Lokey refused to provide a “solvency opinion” endorsing real estate mogul Sam Zell’s plan to take Tribune private because it believed the deal would leave the Chicago media giant mired in debt, The Wall Street Journal reported.

The revelation of the early rejection of the Zell deal, reported by  Mike Spector and Shira Ovide, is significant because a court-appointed examiner in Tribune’s Chapter 11 bankruptcy case last week criticized the work of Valuation Research Corp., the firm that ultimately gave Tribune a solvency opinion that said the deal was financially sound. The examiner, Kenneth Klee, said the firm’s work was “highly suspect,” and concluded that when the deal was coming to a close at the end of 2007, Tribune had committed to take on so much debt that it was already insolvent.

Because the deal was so highly leveraged, Tribune needed to get a solvency opinion to reassure lenders.

The $8.2 billion going-private transaction left Tribune with $13 billion in debt at one of the worst economic periods for newspapers ever. Tribune filed for bankruptcy reorganization in December 2008.

Citing unnamed people familiar with Houlihan Lokey’s dealings with Zell and Tribune management, the Journal reported the bank considered the deal “as ‘DOA’ and felt it was ‘going to fail,’” the Journal quoted one source as saying.

“Houlihan’s refusal to provide Tribune with an initial solvency opinion shows how doubts about the deal surfaced well before the first round of financing in spring 2007 that put Mr. Zell’s takeover in motion,” the Journal story said.

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