Wednesday, November 25, 2009

Big Tribune Creditors Seek Control Of Bankruptcy Case

By Michael Oneal

Holders of senior debt pursue the right to file a reorganization plan for the owner of the L.A. Times without further delay. The move could intensify a fight with junior creditors.

A large group of prominent investment firms sought to wrest control of the Tribune Co. bankruptcy case Tuesday in a move that threatens to intensify a pitched battle between senior and junior creditors.

In a filing Tuesday with the U.S. Bankruptcy Court in Delaware, the group asked Judge Kevin Carey to deny a request by Tribune management to extend its exclusive right to file a reorganization plan for the media company, which is the parent of the Los Angeles Times.

The group hopes to win its own right to propose a plan that would enhance senior creditor returns at the expense of the junior creditors.

Calling itself Credit Agreement Lenders, the group owns $4.4 billion of the $8.2 billion in loans Tribune Chairman Sam Zell used to take the company private in 2007.

It is composed of a large number of hedge funds and other investment firms, including such heavyweights as Angelo, Gordon & Co., Oaktree Capital Management, Goldman Sachs Group Inc. and Kohlberg Kravis Roberts & Co.

Absent from the group are big lenders to the Zell deal that also own the senior debt, including JPMorgan Chase & Co. and Merrill Lynch & Co. But JPMorgan, in filing its own objection Tuesday to management's request to extend exclusivity, signaled its support for the Credit Agreement group, saying that "it is time for the parties . . . to move forward without further delay."

The filings amount to a protest against Tribune's attempts to broker a deal between the senior creditors and a group of militant junior creditors led by Centerbridge Partners, another big distressed-bond investor. In late August, Centerbridge and other owners of $1.26 billion in junior bonds challenged a proposed reorganization plan that would swap debt for equity to recapitalize the company, arguing that the plan would give them a mere "sliver of equity" for their claims.

On Nov. 13, Tribune petitioned the court to extend until March its exclusive right to forge a reorganization plan, partly so it would have time to work a compromise between the increasingly combative creditor factions.

But in its objection to the Tribune filing Tuesday, Credit Agreement Lenders complained that the Centerbridge group was dragging its heels and threatening to send the case into "a litigation morass of monumental proportions." The senior group said that it had already proposed a plan to Tribune management but that the company hadn't acted on it. At the moment, the group complained, "there are no negotiations" and "no progress toward a consensual plan." Consequently, the group concluded, it should be allowed to propose its plan to the court directly.

Judge Carey will take up the matter at a hearing in Delaware on Dec. 1. Tribune declined to comment Tuesday.

Tribune Co. Control Of Bankruptcy Challenged

By Michael Oneal

In late August, Centerbridge and other owners of $1.26 billion in bankrupt Tribune Company's junior bonds, challenged a proposed reorganization plan that would swap debt for equity to recapitalize Tribune Co., arguing that the plan would give them a mere "sliver of equity" for their claims.

To gain leverage, they threatened to challenge the 2007 buyout as an instance of "fraudulent conveyance," a legal term meaning the deal was doomed from the start.

If they could prove it, the judge would invalidate the $8.6 billion in claims owned by the senior lenders, leaving plenty of value to pay off the junior claims.

In October they got some heartening news: A fraudulent conveyance case in Florida resulted in a $600 million judgment against a set of senior lenders, including several involved in the Tribune case.

Sources said the standoff is likely to focus the judge on a highly technical area of the law: Whether the junior creditors have legal standing to bring a fraudulent conveyance case in the first place.

The Centerbridge group, which is represented by its trustee, Law Debenture Trust Co., argued in its own filing Tuesday that Tribune Co. inappropriately used its subsidiaries to guarantee the leveraged-buyout debt, guarantees that form the basis of the lenders' seniority over the junior bondholders.

That put the subsidiaries at risk without giving them any value in return, since all money went to pay parent company shareholders, one basis for fraudulent conveyance.

The catch to this argument is that the junior creditors own notes issued by the parent company, not the subsidiaries, raising the issue of whether the Centerbridge group can legally claim it was harmed by something that happened at the subsidiary level.

The Credit Agreement Lenders signaled in their filing that they would challenge this point by proposing a plan that essentially ignores the junior creditors. They would reorganize the subsidiaries, including companies that own the Chicago Tribune, the Los Angeles Times, Tribune Co. TV stations and other assets, and form a new holding company owned by the senior creditors.

In doing so, they would pay off subsidiary trade creditors, buying their support. The old parent company and the junior creditors, meanwhile, would be left behind in court.

Sources said Law Debenture would likely argue that because the holding company's value derives from the subsidiaries, the junior creditors were, indeed, harmed by a possible fraudulent conveyance and should be able to bring a claim.

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