Tuesday, December 1, 2009

Tribune Co. gets more time to file Ch. 11 exit plan

Tribune Co. managers will have until Feb. 28 -- two months less than they asked for -- to file their own reorganization plan that will enable the media giant to exit bankruptcy.

U.S. Bankruptcy Judge Kevin Carey granted the extension at a hearing in Delaware this morning. Tribune had asked the court to give its management team until March 31 to craft a plan to exit Chapter 11 without interference from other parties. The judge said the Tribune could apply for more time if needed.

The ruling comes as certain bondholders have claimed the leveraged buyout engineered by real estate mogul Sam Zell used to buy Tribune violated federal bankruptcy laws. Some creditors have opposed Tribune management's effort to craft their own exit plan. Tribune filed for protection last December.

In addition, Tribune's unions continue to protest Mr. Zell's request for permission to pay up to $70 million dollars in executive bonuses, as opposed to using those funds to stave off further layoffs, benefit reductions, or pay down some of the $ 13 billion in debt obligations.

Judge Carey seemed swayed by arguments for granting a limited extension, giving time for talks but forcing participants to report back.

"Look around and listen. The sound of clocks ticking is deafening. Courts have to be sensitive to how much of a cost benefit there is in requiring the exercise in two months rather than four," Carey said.

He ordered the parties to report back on Feb. 18, at which time he could grant an added 60 days of exclusivity.

Bankruptcy gives a company a limited time in which it has the exclusive right to propose a plan to reorganize its business and debts, although that right can be extended with court approval.

The biggest issue remaining in the case is the investigation of the $8.2 billion leveraged buyout that put real estate developer Sam Zell in control of the company in 2007.

Holders of $1.26 billion of unsecured notes have argued for a full investigation of the deal, which they said put their claims behind billions of dollars of secured claims.

They have argued the deal could amount to a "fraudulent conveyance," which could strip some of the lenders of the senior position of their claims.

A similar argument was recently made in the case of bankrupt home builder, Tousa Inc (TOUSQ.PK). A judge voided some Tousa loans and ordered the lenders to return $600 million.

In the Tribune case, a group of hedge funds holding secured loan claims had argued that the judge should terminate the exclusivity period and allow them to put forward their own plan.

The group proposed reorganizing Tribune's subsidiaries, which conduct most of the company's business, and bringing them out of bankruptcy quickly, under the control of the lenders.

The parent Tribune would be left in bankruptcy under their plan while the dispute over the leveraged buyout would be settled through litigation.

"I don't see any benefit to separating the corporate family," said Carey. "The presentation was very thoughtful. We may have to think about it more in the future.

The case is in Re: Tribune Company et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141 (Editing by Gerald E. McCormick) ((thomas.hals@thomsonreuters.com; 1-302-993-6283; Reuters Messaging thomas.hals.reuters.com@reuters.net))

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