Tuesday, February 2, 2010

Tribune Creditors Seek To Sue Over 2007 Leveraged Buyout

By Emily Chasan

NEW YORK, Feb 1 (Reuters) - Creditors of bankrupt U.S. newspaper publisher Tribune Co (TRBCQ.PK) are seeking approval to sue the parties involved with the company's 2007 leveraged buyout, according to court papers on Monday.

According to a motion filed in the U.S. bankruptcy court in Delaware, the company's official committee of unsecured creditors is seeking approval to file a draft of its proposed complaint so it may begin to deal with claims arising out of the buyout.

The publisher of the Chicago Tribune and Los Angeles Times filed for bankruptcy in December 2008 after going private in an $8.2 billion deal led by real estate magnate Sam Zell that resulted in the company having $13 billion in debt.

Zell resigned as chief executive last month after two years at the helm, but remains chairman.

Separately, Tribune asked the bankruptcy court for an extension of its time to have the exclusive right to file its reorganization plan. It said it is working to file the plan before Feb. 28.

"We are nearing the date when we will file plan, but we are asking to extend our period of exclusivity to June 8, 2010, so that we can keep everyone focused on getting to one solution," the company wrote in an internal memo to employees. The memo was obtained by Reuters from a source involved with the matter but unauthorized to share an internal company memo.

"Also today, the UCC filed a motion asking for the right to bring litigation regarding claims of fraudulent conveyance related to Tribune's 2007 going-private transaction. It is not unusual for creditors in a bankruptcy to pursue negotiations and litigation simultaneously; litigation is often part of a negotiating strategy," the memo said.

Tribune, whose properties also include 23 local television stations, had run into some resistance from lenders last year when it sought a similar extension.

Its lenders had said then they wanted to offer their own plan to reorganize the company.

A court hearing on the two requests is set for Feb. 18.

The case is In re: Tribune Company, U.S. Bankruptcy Court, District of Delaware, No. 08-13141. (Additional reporting by Robert Macmillan; editing by Carol Bishopric and Ian Geoghegan)

Unsecured Creditors Seek To Challenge Tribune Co. Buyout

Petition asks for permission to file complaint alleging 'fraudulent conveyance'
By Michael Oneal, Tribune reporter

The unsecured creditors in Tribune Co.'s Chapter 11 bankruptcy case sought permission Monday to officially challenge the legality of Sam Zell's 2007 leveraged buyout of the company, turning up the heat to either settle the case or pitch it into extended litigation.

Ending a prolonged investigation of the controversial transaction, the Official Committee of Unsecured Creditors petitioned U.S. Bankruptcy Judge Kevin Carey for the go-ahead to file a complaint alleging the LBO was a case of "fraudulent conveyance," meaning the deal itself made Chicago-based Tribune Co. insolvent from day one.

If the committee is allowed to file its complaint and can prove fraudulent conveyance, the judge could render invalid $8.6 billion in claims owned by the senior creditors who financed the deal, vastly increasing the value of claims held by junior creditors.

But sources on both sides of the situation said the filing of a fraudulent conveyance complaint is an expected show of muscle by the junior creditors amid negotiations that have actually gained some ground toward a settlement in recent weeks.

Executives at Tribune Co., which owns the Chicago Tribune, characterized the filing as "public posturing" intended as a negotiating tactic. In an e-mail to employees Monday, Chief Executive Randy Michaels and Chief Operating Officer Gerry Spector said "we believe a plan of reorganization acceptable to all our creditors is achievable, and the negotiations with them are active and ongoing."

At the same time, however, Tribune Co. petitioned the court to extend its exclusive right to forge a compromise plan to June 8.

In its motion, the company said it hopes to reach a settlement and file a plan before its current Feb. 28 deadline. But the company also argued that the various factions in the case continue to "jockey for tactical advantage" and that if the company's exclusive right to forge a compromise were ended too soon it "would mire these cases in protracted and contested proceedings."

At the heart of the dispute is a proposed reorganization plan that would unburden Tribune Co. by swapping a large chunk of $13 billion in debt for equity. That would transfer ownership of the company from Zell and Tribune employees to the company's creditors.

Who gets what, however, remains an open question. The owners of $8.6 billion in senior debt used to finance the LBO have argued that they should own essentially all of the company based on their seniority. But by pressing the fraudulent conveyance claim against them, junior creditors are fighting to carve out as big a slice as possible for themselves.

Seeking to wrest control of the case last November, several large senior creditors, including investment funds Angelo Gordon & Co. and Oaktree Capital Management, opposed Tribune Co.'s previous request to extend exclusivity. Engaging in some muscle flexing themselves, they offered an alternative plan that would circumvent the fraudulent conveyance claim and leave the junior creditors with essentially nothing.

An attorney for the group wouldn't comment when asked if it would contest Tribune Co.'s latest requesrequest for an extension. But parties have time to file new objections before a Feb. 18 hearing on the matter.

Hedge funds holding about $4.4 billion of the LBO debt opposed Tribune’s last request for more time. They have proposed that lenders, including the hedge funds, take over Tribune’s television and newspaper operations in return for canceling $8.5 billion they are owed.

The LBO dispute pits bondholders owed as much as $1.26 billion against the hedge funds, other lenders and their agent JPMorgan Chase Bank NA.

The bondholders, including Law Debenture Trust Co. of New York and Centerbridge Credit Advisors, hold most of the debentures issued in 1996, which are due in 2027 and 2096. The hedge funds include Anchorage Advisors LLC, Contrarian Funds LLC, KKR Strategic Capital Holdings I LP and Latigo Master Fund Ltd.

Should Centerbridge and Law Debenture prove the buyout was a so-called fraudulent transfer, they could be paid before the lenders. Shareholders may be forced to return some of the money and board members could be held liable for authorizing the transfer, under the bankruptcy code.
The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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