Dissident Bondholders Accuse Tribune of Hiding Payments to Some Lenders

By: Mark Fitzgerald While under Chapter 11 protection, Tribune Co. has paid "millions of dollars" in hidden and unauthorized fees to lawyers and financial advisory firms hired by senior lenders as part of a plan to grab the lion's share of the Chicago media giant's assets, claims a dissident group of bondholders.

In documents filed with U.S. Bankruptcy Court in Delaware, Law Debenture Trust Co., the trustee representing holders of bonds issued in 1996, also accuses Tribune Co. of directly paying some of the so-called "leveraged buyout (LBO) lenders," the banks that financed the $8 billion the deal that took Tribune private in 2007.

Law Debenture has previously claimed that the going-private deal was a "fraudulent conveyance" that was engineered despite the lenders' certainty that it would fail. Tribune filed for Chapter 11 bankruptcy protection in December 2008.

"The Debtors are deeply insolvent," the document, filed last Friday, states, referring to Tribune Co. "Nonetheless, the Debtors here have entered into an undisclosed transaction to benefit their LBO Lenders at the expense of their estates and have kept this arrangement hidden from this Court and creditors (other than the Creditors Committee). The Debtors have arranged to pay millions of dollars in fees to the LBO Lenders' restructuring professionals -- no less than four law firms and two financial advisory firms -- even though the LBO Lenders are unsecured creditors (undersecured at the parent) holding disputed claims arising from an LBO that most likely constituted a fraudulent conveyance."

If the bondholders are successful in their case that the going-private transaction as a fraudulent conveyance, the claims of the LBO lenders would be nullified, leaving more assets available to less senior creditors such as the bondholders represented by Law Debenture.

"Law Debenture believes that the agreement to make the unauthorized fee payments may have been part of a plan that would assist in the burying of the estates' claims against the LBO Lenders," the document states.

A hearing on the allegations has been set for Nov. 9.