Tribune Officers Got ‘Incentives’ for Buyout Vote

By Steven Church

April 8 (Bloomberg) -- Tribune Co. officers approved a flawed leveraged buyout that drove the publisher into bankruptcy because they got “special monetary incentives,” creditors claimed in court papers.

Real estate billionaire Sam Zell designed the $8.3 billion transaction in a way that let Tribune’s managers cash out their stock while deferring millions of dollars in taxable capital gains, according to a draft amended complaint filed in the company’s bankruptcy case in Wilmington, Delaware.

The buyout’s structure gave Zell and company managers “huge windfalls that induced them to proceed with the ill- advised LBO that, although personally beneficial to them, was disastrous for Tribune,” the creditors, represented by their agent, Wilmington Trust Corp. said April 5 in court papers.

Tribune filed for bankruptcy in December 2008, a year after Zell used more than $8 billion in loans to take control of the publishing and television company. The company owns the Los Angeles Times and Chicago Tribune.

The managers, including directors and other officers, weren’t named in the complaint, written to update a lawsuit filed against the banks that funded the 2007 buyout. Tribune spokesman Gary Weitman declined to comment.

Tribune’s bankruptcy divided creditors. Wilmington Trust alleges on behalf of bondholders that the company’s banks caused the bankruptcy by arranging loans the company had no chance of repaying.

The suit was filed against JPMorgan Chase Bank, Merrill Lynch Capital Corp., Citibank NA, Bank of America NA and Morgan Stanley & Co.

The banks were allied for much of the case with Tribune managers, who agreed to use company cash to pay the banks’ legal fees.

Hedge funds holding $4.2 billion of the buyout loans have told U.S. Bankruptcy Court Judge Kevin Carey they want the chance to reorganize Tribune’s operations.

The main committee of unsecured creditors wants to file a lawsuit over the buyout in an effort to recover money. That committee, which includes representatives of the banks, opposes the Wilmington Trust lawsuit.

Tribune managers say they are trying to broker a settlement of the buyout claims that will allow the company to exit bankruptcy. They have sought an extension to April 30 of their exclusive right to reorganize.

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

--Editors: Mary Romano, David Rovella.

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net