Tuesday, August 18, 2009

Zuckerman Wants In on Tribune Bankruptcy

Posted by Zach Lowe

There's an interesting new development in the Tribune Co. bankruptcy case: The creditors committee, before now represented solely by Chadbourne & Parke, filed papers late last week requesting permission to add Zuckerman Spaeder as special counsel.

The reason? The committee wants to investigate possible causes of action against firms that helped arrange the $8.2 billion leveraged buyout in which Chicago billionaire Sam Zell took the company private in 2007.

Some of those firms are members of the creditors committee, which means this latest development could lead to fellow credit committee members suing each other--creating the need for additional counsel.

The maneuver to take the Tribune private failed in part because the company took on too much debt in the transaction, which ended with an employee stock ownership plan as Tribune's majority owner, according to this piece in the Chicago Tribune. The company filed for bankruptcy a year later (with Sidley Austin as primary counsel).

Two creditors committee members--JPMorgan Chase and Merrill Lynch Capital Corp.--participated in the financing of the leveraged buyout. The other members of the committee asked Chadbourne earlier this year to investigate filing suit against any company that helped arrange the buyout, but the firm declined, citing a conflict of interest.

Chadbourne told the committee it could "investigate and conduct settlement negotiations with the lenders" in the buyout, but that the firm "would be unable because of conflicts to bring claims against certain of such lenders," according to Zuckerman's filing to become special counsel.
Junior creditors in the Tribune case are planning to argue they should get paid before senior creditors, because some of those senior lenders financed the 2007 buyout--and presumably reaped big fees from their role in the transaction, the New York Post is reporting.

Howard Seife, chair of Chadbourne's bankruptcy department, did not immediately return a call seeking comment. Thomas Macauley, a Zuckerman partner who submitted an affidavit with his firm's application to join the case, also did not respond to a message seeking comment.

If retained, Zuckerman's partners and counsel will charge between $475 and $825 per hour, and associates will bill between $300 and $500 an hour.

Though the circumstances are slightly different, you might recall that small creditors in the General Motors bankruptcy case asked a federal judge for permission to form their own committee alleging that the official creditors committee wasn't adequately representing their interests. Judge Robert Gerber denied that request, in part because the debtor--GM's estate--would have been required to pay the committee's legal fees.

Presumably, that would also be the case in the Tribune bankruptcy.
Several bankruptcy experts told the Tribune that it's not unusual for creditors in a bankruptcy to challenge a leveraged buyout as a "fraudulent conveyance" of wealth to those who advised on it--including lawyers--if the buyout fatally damaged a company's solvency.

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