By: Randall Chase/AP
The Tribune Co. on Thursday won approval from a Delaware bankruptcy judge for more time to file a Chapter 11 reorganization plan.
Judge Kevin Carey agreed to extend a Feb. 28 deadline to March 31 after Tribune withdrew a request for a June extension that had prompted objections from some creditors.
In granting the additional time, Carey delayed hearing a request from Tribune’s committee of unsecured creditors for permission to pursue claims against banks that financed a 2007 leveraged buyout, led by real estate mogul Sam Zell, that took the company private and left it mired in debt.
Carey also postponed consideration of a request by the trustee for holders of $1.2 billion in subordinated notes for the appointment of an independent examiner to investigate the $8.2 billion buyout.
Tribune, which owns the Los Angeles Times, Chicago Tribune, The (Baltimore) Sun and other dailies, along with 23 TV stations, filed for bankruptcy protection in December 2008 because of dwindling advertising revenue and a crushing debt load of $13 billion, much of it stemming from the buyout.
Tribune attorneys and representatives argued Thursday that allowing the creditors committee to challenge the LBO lenders’ priority claims or appointing an examiner would upset efforts to negotiate a global settlement with all parties that would allow the company to emerge from bankruptcy.
“A lot has been happening; the negotiations have been hot and heavy,” Tribune attorney James Conlan told the judge.
David Kurtz, a managing director with Tribune’s financial adviser, Lazard Ltd., said negotiations had reached a “delicate stage.” If Tribune were not allowed more time, it would be forced to submit a reorganization plan with a proposed global settlement that likely would be challenged in court, delaying or derailing a negotiated settlement, he said.
“When litigation begins, people retreat into litigation mode,” said Kurtz, who noted that fees for attorneys and other professionals already are costing Tribune’s bankruptcy estate $8 million to $10 million a month.
“We would expect that those dollar amounts would increase if litigation were to commence,” said Kurtz, adding that the ongoing bankruptcy also has prevented Tribune from taking advantage of strategic opportunities and hampered its ability to retain and recruit top management.
The judge, who said he was not eager to see the case fall into what one creditors’ attorney described as a “litigation morass,” said the extension of time may be Tribune’s “last, best opportunity” to achieve a resolution acceptable to all parties.
Kurtz made clear, however, that even if a resolution is not reached, Tribune has no intention of suing the banks that financed the buyout.
“It is a path we have considered pursuing; it is a path we are unlikely to pursue,” he said, adding that Tribune expects that any global settlement would protect officers and directors, including Zell, from third-party claims for breach of fiduciary duty.
The four banks that financed the 2007 buyout were JP Morgan Chase & Co., Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co., which is now part of Bank of America.
Some Tribune creditors argue that the buyout was a fraudulent conveyance and that the LBO lenders’ priority claims should be disallowed because they knew Tribune was insolvent at the time, and that the debt load likely would push the company into insolvency.
As things now stand, however, Tribune is the only party that can sue the LBO lenders, who because of their priority claims are in a position to take over the company. Carey postponed the hearing on the committee’s request to pursue claims against the LBO lenders until late March or April.
Kurtz, meanwhile, rejected the notion that the LBO lenders think they are in the clear just because Tribune does not plan to sue them.
“There is no illusion on the part of the banks that this claim is just going to fade into the sunset,” he said, adding that the current uncertainty on whether Carey will allow the creditors committee to pursue claims against the lenders actually is beneficial to settlement talks.