Wednesday, December 2, 2009

Tribune’s Payouts To Lenders’ Lawyers No Secret Anymore

By Peg Brickley

Tribune Co. got a slap from a bankruptcy judge Tuesday for allegedly sneaking $24.7 million to lawyers and financial advisers for J.P. Morgan Chase & Co. and other lenders who are likely targets of a lawsuit over the company’s collapse.

The money came from Tribune FN Cable Ventures Inc., the Tribune unit that owns a stake in the Food Network. Tribune FN Cable isn’t part of the parent company’s Chapter 11 case. According to Tribune, that made the payoffs kosher.

Sam Zell, the chairman and chief executive of Tribune Co., led the company’s 2007 leveraged buyout. Tribune’s unsecured creditors are investigating the deal, which saddled the media company with billions in debt.

Judge Kevin Carey called the long-hidden payments “a tactical error whether there was a nefarious motive or not.”

Nefarious? J.P. Morgan? You betcha, say bondholders, who are licking their chops at the prospect of suing J.P. Morgan and other lenders over the disastrous leveraged buyout that piled more than $8 billion in debt on Tribune.

J.P. Morgan and Tribune “orchestrated a way” to get money out of the company without tipping off the bankruptcy judge, said bondholder attorney David Rosner, who’s with Kasowitz Benson Torres & Friedman.

According to bondholders, the legal and financial advisory fees had nothing to do with enforcing Tribune’s rights under its $8 billion loan deals. Tribune is already picking up the defense costs for a lending group that is in the crosshairs of creditors itching to make someone pay for the soured deal, bondholders say.

Company attorney Bryan Krakauer said Tribune did disclose the bank fee payments to federal bankruptcy watchdogs, who failed to bark, and to the official committee of unsecured creditors, which had no objection.

J.P. Morgan has a seat on the committee but didn’t participate in the panel’s decision to stay quiet about the fees.

Carey said “it was a mistake” not to clue in the bankruptcy court on the payments. He ordered Tribune to disclose the payments and prepare for an evidentiary hearing on whether the money should come back.

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