Friday, April 2, 2010

Loophole Gives Tribune More Time To File Reorganization Plan

Tribune Co. Buys More Time For Reorganization Plan

By Michael Oneal

With the clock ticking on a March 31 deadline, Tribune Co. bought more time to negotiate with its fractious creditors Wednesday when it filed a motion in Delaware bankruptcy court to extend until April 30 its exclusive right to propose a reorganization plan in its 15-month-old Chapter 11 case.Any extension of the "exclusivity period" would require a judge's approval. But the move takes advantage of a quirk in Delaware law, which allows Tribune Co. to file the motion and essentially freeze exclusivity until the next scheduled court hearing April 13.

Tribune Co., which owns the Chicago Tribune, the Los Angeles Times and other media properties, had filed four extensions in the case as it tries to broker a compromise deal between its sparring senior creditors and junior bondholders. It's most recent extension was set to run out Wednesday.

Several sources said the goal is still to have an agreement before the April hearing, perhaps as early as in the next few days. But, as one source said, "Human nature is such that until the last minute, people aren't willing to make a deal."Tribune Co.'s option had been to file a plan that would takes sides with one group of creditors, angering the other. Or it could have proposed an official compromise solution that ran the risk of angering everybody, sources said.

Company management and its Chicago-based lead counsel, Sidley Austin, have been consistent in saying they'd like to reach a consensual plan to recapitalize the company. Now they've given themselves at least 13 more days to see whether that's possible.

Tribune Co. won't comment on negotiations, but the general architecture of a proposed restructuring plan hasn't changed significantly since the middle of last year, sources said.

Saddled with $13 billion in debt incurred largely to finance the disastrous 2007 leveraged buyout led by Chicago real estate magnate Sam Zell, Tribune Co. has proposed swapping most of the debt for equity in a newly public, unburdened company.

The focus of negotiations is how that equity would get split up.

Senior creditors, comprising banks led by JPMorgan Chase that lent more than $8.6 billion to the deal, as well as countless hedge funds and distressed debt investors who bought pieces of those loans on the secondary market, have long contended that the value of Tribune Co. has fallen well below $5 billion, meaning their claims, being senior, should overwhelm all others.

But two groups of junior bondholders with more than $2 billion at stake have cried foul, saying they were improperly subordinated to the senior lenders by the deal. They have threatened to bring a case of "fraudulent conveyance" and breach of fiduciary duty against the lenders, Tribune Co.'s board and Zell, charging that the LBO rendered the company insolvent as soon as the ink dried on the contracts.

After months of court-imposed discovery that produced more than 2 million documents and e-mails, the unsecured creditors committee filed a motion in early February asking U.S. Bankruptcy Judge Kevin Carey for permission to bring such a case.

The net effect has been to increase the leverage of the junior bondholders. But even that is complicated: One group of bondholders, led by distressed debt investor Centerbridge Partners, is senior in hierarchy to the other, represented by Wilmington Trust Co. That means the Centerbridge group has been central to the negotiations while Wilmington has complained in court of being left out.

Though details remain up in the air, a deal would likely give a large majority stake in Tribune Co. to the LBO banks and a consortium of other senior creditors led by distressed investing hedge funds Angelo, Gordon & Co. and Oak Tree Capital, sources say. The question is how much they will be willing to give up to buy peace with Centerbridge and the creditors committee. Whether Wilmington would be brought under the tent or have a deal forced on it is not clear. An attorney for the group did not return a request for comment.

The implications of not cutting a deal are plain. The April 13 hearing is scheduled to take up the creditor committee's motion to file a fraudulent conveyance complaint as well as a separate action pressed by Wilmington. Absent a compromise among the major creditor groups, Tribune Co.'s expensive legal wrangling will continue.

Notes: The company said in its court filing today that it couldn't explain why it needs more time without revealing confidential information about the negotiations to the public.

The banks are challenging the bondholders' right to sue. The lawsuit was brought by Wilmington Trust Co on behalf of the bondholders against banks that include Bank of America Corp (BAC.N), Barclays Plc (BARC.L), Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N). [ID:nN04128419]

The bondholders claim the buyout illegally loaded billions of dollars of debt onto Tribune's newspapers, television stations and other operations without giving them any value in return. The loans were used to buy the company from shareholders.

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

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