By: Mark Fitzgerald
One of the biggest holders of Tribune Co. bonds issued before the Chicago media giant went private in 2007 and bankrupt a year later is asking the judge overseeing the Chapter 11 case to appoint a trustee – saying Tribune management and its senior lenders have acted dishonestly before and during the bankruptcy process.
“This is a case that screams out for the appointment of a trustee,” attorneys for Aurelius Capital Management LLC write in a harshly worded motion in U.S. “The appointment of a trustee is mandatory where, as here, management acts dishonestly or fraudulently.”
A court-appointed trustee is necessary because the people involved in trying to craft a restructuring plan — including Tribune Chairman Sam Zell who engineered the $8 billion leveraged buyout and the big banks holding secured debt – have vested interests in avoiding looking too deeply into whether the deal was a “fraudulent transfer,” that is, a transaction that leaves a company insolvent from day one.
Earlier this week, the official committee of unsecured creditors asked for permission to file suit against Zell and others.
Much of the 56-page filing is taken up reciting the possible misdeeds documented in the report by a court-appointed examiner, who concluded that a court might find that “one or more senior financial officers” of Tribune were involved in a fraudulent transfer.
The failure of the latest proposed settlement plan is another argument for a trustee, Aurelius says.
“The recently withdrawn ‘settlement plan’ was the product of unremedied and unchecked conflicts of interest — the desire of the fraudulent transferors to protect their management, and the desire of the fraudulent transferees to maximize their returns and minimize their exposure,” the filing states.
Tribune has appointed a special committee of independent directors who were not involved in the leveraged buyout to oversee the process of drawing up a new restructuring plan – but the Aurelius filing calls that action “too little too late.”
“The debtors actions in this regard are akin to a burglar who puts the silver back in the china cabinet when the homeowner switches on the light,” the filing states. “Now that the examiner has turned on the light in these cases, the only way to restore creditor confidence and put integrity back into the process is to remove the debtors from the plan process and replace them with a trustee.”