Wednesday, April 21, 2010

Deadline Set For Report on Tribune Bankruptcy Irregularities

Examiner will probe 2007 buyout, including role of Zell

The bankruptcy judge signed an order yesterday formally calling for the U.S. Trustee to name an examiner to perform an examination of newspaper publisher Tribune Coompany. Bankruptcy judge Kevin Carey said he wanted the examiner inquiry to be conducted in parallel with continuing negotiations between the company and its creditors in order to broaden the proposed reorganisation plan.

The examiner, whose report is due by July 12, will investigate whether the $13.8 billion leveraged buyout led by Sam Zell in December 2007 included fraudulent transfers because operating subsidiaries pledged their assets for new loans and didn't receive equal value in return.

The leveraged buyout put real estate developer Sam Zell in control of the company. Bondholders have blasted the deal as the "virtually no money down LBO" and blame it for Tribune's bankruptcy and their investment losses.

The bankruptcy judge also charged the examiner with investigating whether the indenture trustee for $1.2 billion in exchangeable subordinated notes violated the so-called automatic stay by filing suit in March against secured lenders who financed the LBO.

The suit is based on a theory known as equitable subordination. If the suit succeeds, the lenders, although secured, would be paid after the subordinated debt. The defendants in the suit include JPMorgan Chase Bank NA, Merrill Lynch Capital Corp., Citibank NA and Morgan Stanley & Co.

The lenders want the indenture trustee held in contempt for violating the automatic stay.
The examiner also will look into whether the indenture trustee disclosed information in the complaint that was required to remain confidential.

The bankruptcy judge will hold a status conference on May 10 to consider the examiner's work plan and estimated expenses.

Tribune filed a proposed Chapter 11 plan on April 12 to implement a settlement negotiated with some creditors. Before the plan was filed, holders of $3.6 billion in pre-bankruptcy secured debt announced their opposition to the plan and the settlement.

The junior bondholders, who hold $1.2 billion of debt, have said their best hope for a recovery in the bankruptcy lies in disallowing billions of dollars of senior claims. They are seeking to prove the lenders extended loans to finance the leveraged buyout knowing it would render the company insolvent.

Holders of those leveraged-buyout loans will receive nearly all of the company's equity under the company's proposed reorganization plan, which will wipe out billions of dollars in debt.
The examiner will issue a report by July 12. The examiner will also investigate the conduct of the legal counsel for the junior bondholders to determine if confidential information was improperly disclosed in court filings.

A judge on Monday set the week of Aug. 16 for considering the company's plan of reorganization.

Tribune is the second-largest newspaper publisher in the U.S. The company listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Court-Appointed Bankruptcy Examiner For Tribune

By Pandora Young

Bankruptcy cases can be confusing. Fortunately the Tribune Company's Chapter 11 is going to get a little extra attention in the form of a Bankruptcy Examiner. We're not entirely sure what such a person does, but we bet they're expensive.

The LA Times explains a bit:

The examiner, who will be appointed by the U.S. Bankruptcy Court trustee in Delaware by the end of the week, will be free to inspect all aspects of the case, including the buyout and the fairness of a settlement reached this month between Tribune and some of its creditors...
Legal experts say the appointment of an independent examiner could speed up negotiations. But it also could raise new issues that might complicate the case.

The examiner's report is due July 12. But we don't need to read it to know that Sam Zell is a twerp.

No comments: