Thursday, September 24, 2009

Destined to Fail? Bondholders Will Get Tribune Buyout Documents

By Mark Fitzgerald

CHICAGO Just ahead of a now-cancelled court hearing Thursday, bankrupt Tribune Co. agreed to provide legal documents to bondholders who contend the deal that took the Chicago media giant private was set up to fail.

Tribune and the official committee of unsecured creditors agreed to give access to documents to the Law Debenture Trust Company, which represents 18% of investors holding bonds issued long before the newspaper and broadcast company was taken private in December 2007 in a deal engineered by Chicago real estate billionaire Sam Zell. The agreement was first reported by Rita K. Farrell of The New York Times.

The bondholders allege the going-private deal -- financed by banks who are ahead of them in the line for access to Tribune's post-bankruptcy assets -- was a "fraudulent conveyance," a legal term meaning the banks financed the transaction knowing it would lead to an unsustainable business operation. After the heavily leveraged transaction, Tribune was left with about $13 billion in debt. When it filed for bankruptcy reorganization last December, it listed assets of $7.6 billion.

The bondholders had asked for a separate investigation into the deal, which the official committee of unsecured creditors said it has already undertaken. If successful in arguing the deal was a fraudulent conveyance, the claims of the bondholders might have a better chance of being paid. Alleging fraudulent conveyance has also frequently been used as a negotiating tactic in bankruptcy settlements.

A separate hearing on Tribune's proposed sale of the Chicago Cubs to the Ricketts family is scheduled to take place Thursday.

The case is in Re: Tribune Company et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

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