Friday, September 18, 2009

Tribune Co. creditors plan to join forces to investigate possible 'fraudulent conveyance'

By Michael Oneal
Tribune reporter
Single probe likely of Sam Zell's 2007 deal to take Tribune Co. private

A scuffle that erupted last month among Tribune Co. creditors over who gets to investigate real estate billionaire Sam Zell's 2007 leveraged buyout appears likely to end with both sides joining forces, people involved in the dispute said Thursday.

What's important, said David Rosner, an attorney representing a bondholder group that instigated the fight, is that the controversial LBO get ample scrutiny as subordinated creditors seek evidence to build a case of "fraudulent conveyance" against the company and senior lenders that financed the deal."I don't think anybody is disputing the importance of fraudulent conveyance to the case," Rosner said.

The tussle broke out in late August when bondholders led by New York private-equity firm Centerbridge Partners filed a motion accusing the Official Committee of Unsecured Creditors of "doing nothing of substance" to press an investigation into whether Zell's $8.2 billion bid to take Tribune Co. private was doomed from the start.

The committee had launched an investigation, but it had been ineffectual, the bondholders said. So they asked the bankruptcy court to grant the group approval to launch its own inquiry or appoint a special investigator.

Several parties, including Chicago-based Tribune Co., which owns this newspaper, and the creditors committee, filed objections Thursday to a separate investigation, saying it would be expensive and redundant. But most agreed that Law Debenture Trust Co., the trustee for the bondholder group, should get access to the information uncovered by the committee's investigation as long as adequate confidentiality agreements could be worked out."There's no sense having a duplication of effort," said Howard Seife, lead attorney for the committee."As long as we are getting the documents, we can work with the committee," Rosner said.

The matter will be resolved at a hearing Thursday before the U.S. Bankruptcy Court in Delaware.

At issue is the outline of a reorganization plan that would give lenders to Zell's deal, such as JPMorgan Chase and Merrill Lynch, a large majority ownership stake in the reorganized company. That would leave subordinated creditors like Centerbridge with what the original complaint called a "sliver of equity" in return for their claims.

The goal of an investigation is to ferret out documents showing evidence of fraudulent conveyance, a legal term meaning the heavily leveraged transaction left the company insolvent from day one, leading to an inevitable Chapter 11 filing.

That could potentially negate the claims of senior lenders to the deal, leaving more assets to be divided among the other creditors. Such tactics are common in Chapter 11 cases that follow a leveraged buyout, bankruptcy experts said. Fraudulent-conveyance claims rarely get far in big cases, said University of Chicago law professor Douglas Baird. But they can be an effective negotiating tactic to give subordinated creditors like Centerbridge more leverage in negotiating with senior lenders for a bigger piece of the recovery.

Tribune Co., which filed for Chapter 11 protection in December, declined to comment but in its response to the bondholder's original motion said it favors Law Debenture getting the information provided to the creditor's committee and is seeking a "consensual global resolution" to the case.

Questions: What is the position of the Newspaper Guild, who has a seat on the creditor committee in this regard. What is the status of Tribune's motion for $70 Million Dollars in executive bonuses? What is the plan for Tribune's employees under Tribune's proposed reorganization plan?


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