Tribune Agreement with Hedge Funds Raises Hope of Ch. 11 Exit

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By: Mark Fitzgerald

After a torturous 21 months, suddenly Tribune Co.’s tangled Chapter 11 bankruptcy doesn’t look so tangled anymore. The Chicago media giant said Tuesday that two big hedge funds holding its debt, Oaktree Capital Management and Angelo, Gordon & Co. LP, had agreed to its plan of reorganization that gives them big ownership stakes post-bankruptcy, and lets Tribune exit Chapter 11 before resolving the numerous legal issues related to the company’s leveraged buyout in 2007 and bankruptcy one year later.

The two funds, specialists in scooping up distressed debt, own much of the $6.6 billion term loan that allowed the so-called “step one” to be completed in the two-part going-private deal engineered by Chicago real estate mogul Sam Zell, who is now Tribune’s chairman.

The settlement was under court-ordered mediation. Tribune said it was approved by the special committee of its board of directors appointed recently to oversee the reorganization plan.

Tribune senior bondholders will receive a $300 million in cash, or about 23% of their claim amount. They will also retain an interest in a litigation trust being set up to settle any claims arising from the “step two” part of the Tribune deal. About $2.2 billion in debt taken on to complete the transaction is at issue in step two.

A court-appointed examiner in a blockbuster report this summer concluded that a court would likely not determine there was anything improper about the structure of step one of the going-private deal, but that it likely would determine that certain current and past Tribune management and other parties, including lenders, had been involved in a “fraudulent conveyance,” a legal term meaning the deal was so loaded up with debt it rendered the company insolvent from day one.

An independent litigation trustee would initiate any legal action related to the fraudulent conveyance claims.

Unsecured creditors of Tribune — who have made the most noise during the contentious Chapter 11 process — will receive the same 23% recovery in cash  and an interest in litigation trust. “Unsecured creditors of Tribune Company’s subsidiaries will have an opportunity to receive 50% of their claim amount in cash,” Tribune said.

As a result of the long Chapter 11 process, Tribune has a “chief reorganization officer,” Don Liebentritt. Here’s his prepared statement on the settlement with the original capitalizations typical in these kinds of statements:

“The plan addresses two primary issues that are fundamental to a successful reorganization of  Tribune. First, it enables the  company to exit Chapter 11 and distributes the equity of the reorganized Tribune and its  subsidiaries to the holders of the Initial and Incremental Term Loan claims.

“Second, to the extent  not settled prior to confirmation, all claims identified by the Examiner’s Report relating to ‘Step  2’ of the company’s going-private transaction are preserved and placed in a litigation trust. We  remain confident that additional settlements will be reached.”

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