Unsecured Creditors, JPMorgan Sign on to Tribune Bankruptcy Exit Plan

The official committee of unsecured creditors and JPMorgan Chase Bank N.A. have joined other senior lenders in support of an expanded reorganization plan for bankrupt  Tribune Co., the Chicago media giant said Tuesday.

Two big creditors, the distressed debt firms Angelo, Gordon & Co. and Oaktree Capital Management LP had agreed to a previous version of the reorganization plan reached under court-ordered mediation overseen by U.S. Bankruptcy Court  Judge Kevin Gross.

This new plan, however, would resolve legal claims related to the so-called “Step 2” part of the two-part leveraged buyout deal engineered by real estate mogul Sam Zell that took Tribune private in December 2007. As part of the deal, Tribune took on about $6 billion in debt in “Step 1” and another approximately $2 billion later in the year for the final step. The massive debt, combined with the harsh economic downturn generally and in the newspaper industry in particular, forced the company to seek Chapter 11 bankruptcy reorganization in December 2008. Several parties to bankruptcy, including the official committee of unsecured debtors, have threatened to purse the legal claim that the deal was a “fraudulent conveyance” that rendered Tribune insolvent from day one. The claim could make the senior lenders ineligible for the vast percentage of Tribune’s post-bankruptcy assets.

A court-ordered inspector this summer found that  a court was unlikely to find there was anything improper about Step 1 of the deal, but that it could determine Step 2 was a fraudulent conveyance.

This new version of the reorganization plan, Tribune said, includes a “contribution of $120 million in cash  by recipients of pre-bankruptcy payments on the incremental tranche of the Tribune  senior loan and the bridge loan facilities through an optional settlement of those  claims, with the arrangers for those facilities providing a backstop to ensure that the  estates receive the full settlement payment on the plan’s effective date.”

With the additional payment, Tribune’s bondholders to receive $420 million, or about 33   cents on the dollar when Tribune emerges from bankruptcy. They will also have an interest in a litigation trust for legal claims relating to the leverage buyout.

The first $90 million  of recoveries from the trust will be allocated to general unsecured creditors,  including its bondholders, Tribune said.

As with the previous settlement agreement senior lenders will own the great majority of Tribune after bankruptcy.

The settlement has  been endorsed by the mediator and a special committee of Tribune’s independent directors, Tribune said. Negotiators have been racing against a Friday deadline imposed by the judge overseeing the bankruptcy case.

“The additional value being allocated to our bondholders and  other unsecured creditors represents a fair and equitable settlement for all of our  constituencies.  We remain confident that Tribune continues on a path toward resolution  of its Chapter 11 cases that maximizes the value of the bankruptcy estates, preserves all  stakeholders’ legitimate entitlements and enables the company to conclude its bankruptcy  proceedings as soon as possible,” Tribune Chief Restructuring Officer Don Liebentritt said in a statement.