Wednesday, March 24, 2010

Tribune Moves Second Bonus Plan


WILMINGTON, Del. — The Tribune Co. will be allowed to withdraw a motion seeking court approval of two management bonus plans worth more than $20 million and instead include them in its reorganization plan, a judge ruled Tuesday.

The U.S. trustee and a union for employees of The Baltimore Sun have fought against the bonus plans, which were the subject of extensive court filings and oral arguments before Judge Kevin Carey.

In January, Carey approved a separate bonus plan allowing bonuses of up to $45 million for hundreds of Tribune Co. managers, including its top 10 executives.

But the judge had yet to rule on two other bonus plans, one authorizing up to $10.6 million to 21 managers, including the top 10 executives, and the other allowing bonuses of up to $9.3 million for 23 people, including six of the top 10 executives.

Rather than waiting for a possibly adverse ruling on the remaining two plans, Tribune filed a motion earlier this month indicating that it instead wanted to incorporate them into a reorganization plan.

The request was opposed by the trustee and the Washington-Baltimore Newspaper Guild, which represents about 230 employees of The Sun.

"Now, they seek to back out of the contested matter that is before the court," argued Joseph McMahon Jr., an attorney for the U.S. trustee. "We think it's appropriate for the debtors to lie in the bed they've made."

But Carey noted that, had he ruled against the bonuses, he would have ruled "without prejudice," meaning Tribune would have been allowed to submit a different bonus proposal.
"I don't sense the unfairness with letting the debtor come back with the same or a modified proposal," Carey said, adding that any bonuses incorporated in a reorganization plan would still be subject to objections.

"That's not prejudging anything," he added.

In other developments, Carey granted banks that financed Tribune's 2007 leveraged buyout more time to respond to a lawsuit by Tribune bondholders who claim the banks knew that the resulting debt load would leave the company insolvent. The banks, which faced an initial response deadline of April 5, were given until April 30 to answer the lawsuit.

Tribune, which owns the Los Angeles Times, Chicago Tribune, The Baltimore Sun and other dailies, along with 23 TV stations, filed for bankruptcy protection in December 2008 because of dwindling advertising revenue and a crushing debt load of $13 billion. Much of that debt was amassed when real estate mogul Sam Zell took the company private in 2007.

Wilmington Trust Co., agent for holders of $1.2 billion in Tribune bonds sold before the buyout, alleges that the deal was fraudulent because it loaded up the company with too much new debt that was used to cash out Tribune stockholders. The bondholders want the judge to reject the banks' secured claims, or at least have them paid only after the bondholders' unsecured claims are satisfied. Typically, secured claims get higher priority.

Defendants in the lawsuit include JPMorgan Chase, Citigroup, and Bank of America and its Merrill Lynch subsidiary.

JPMorgan, joined by Merrill Lynch, has filed a motion seeking sanctions against Wilmington Trust for disclosing confidential information in its complaint. Tribune, meanwhile, argues that the bondholders have violated the automatic halt, or "stay," to litigation that a bankruptcy filing brings. Tribune is asking that the bondholders be held in contempt of court, and that all proceedings related to the complaint be halted.

The defendants in the lawsuit noted that if the judge rules in favor of their motions, which will be heard April 13, they may not need to answer the lawsuit.

"We believe the stay violation must necessarily be determined before anything further is allowed to go on with the complaint," said Madlyn Primoff, an attorney for Merrill Lynch.

Wilmington Trust attorney William Dolan III argued against giving the defendants more time to fashion a response.

"We'd like an answer to the complaint," said Dolan, who described the disclosure of confidential information in the lawsuit as "an honest mistake" that was quickly addressed.

But Dennis Glazer, an attorney for JPMorgan, noted that the same law firm representing the bondholders was involved in a similar disclosure of confidential information in another bankruptcy case.

"The explanation of honest mistake rings a bit hollow when somebody is a serial killer," he said.

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