Judge Appoints Tribune Bankruptcy Examiner

By RANDALL CHASE, AP Business Writer

The judge in the Tribune Co.'s Chapter 11 case appointed an independent examiner on Monday to review the 2007 leveraged buyout of the media conglomerate and the potential claims arising from it that might be brought on behalf of the bankruptcy estate.

Judge Kevin Carey approved the U.S. trustee's selection of Kenneth Klee, a California bankruptcy lawyer and law professor at UCLA, to review what is perhaps the core issue in Tribune's bankruptcy.

"We have about as sophisticated an examiner here as you can get. ... I don't think he'll miss anything," Carey said.

Despite the approval of Klee's appointment, attorneys in the case were still wrangling over whether and how information given to him by parties in the case should be considered confidential or privileged.

"I feel that I would be hamstrung not being able to use confidential documents," Klee told the judge, noting that almost every document produced in the bankruptcy case has been labeled confidential.

Carey gave Klee the authority to meet with whomever he wishes without inviting other parties, and to share privileged information with outside parties if need be.

The judge left open the possibility of another hearing Tuesday if attorneys were unable to reach final agreement on how the examination will proceed.

Klee's primary focus will be the buyout, which was engineered by real estate mogul Sam Zell and left Tribune with a crushing debt load.

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 debt load of $13 billion, much of it stemming from the buyout.

A group of bondholders represented by Wilmington Trust Co. sued JPMorgan Chase and other banks that financed the buyout in March, claiming they knew that the resulting debt load would leave Tribune insolvent. The bondholders argue that the deal was fraudulent because it loaded up Tribune with too much new debt that was used to cash out Tribune stockholders. They asked in the lawsuit that the banks' secured claims be disallowed, or at least paid only after the bondholders' unsecured claims are satisfied. Typically, secured claims get higher priority.

In addition to the buyout itself, Klee will analyze whether the bondholders violated bankruptcy court rules and should be penalized for filing their lawsuit and improperly disclosing confidential information in doing so.

Carey confirmed that Klee will not be charged with reviewing a proposed settlement of potential claims from the buyout that Tribune reached with certain creditors and which is the foundation of its proposed reorganization plan. Parties to the settlement include Centerbridge Partners, which leads a group owning outstanding senior bond debt and would get a 7.4 percent stake in the reorganized company. JPMorgan and distressed-debt specialist Angelo, Gordon & Co., who would be among the new owners of the company, also agreed to the settlement, as did Tribune's committee of unsecured creditors.

In his proposed work order, Klee noted that his findings may have an impact on the court's consideration of the settlement, but that he did not think it was his responsibility to investigate or comment on it.

"In a sense, I'm sure the court would appreciate his view," the judge said, adding that Klee's report, which is due by July 12, could very well provide "useful information."

With the possibility of factions maneuvering for advantage in litigation that either already has been filed or likely will be, Carey rejected Wilmington Trust's suggestion that documents provided to Klee by parties in the case be shared with all other parties.

"I don't think it's at all appropriate for copies to be served to other parties," the judge said. "His role is to make a report to the court, whom he serves."

Carey also ruled that that when Klee and his financial advisers talk with the financial advisers for one group, they do not have to invite financial advisers from a competing party.

"He can decide to invite whomever and in whatever combination he thinks in order to fulfill his responsibilities," the judge said. "I don't think its necessary that the examiner share that information with others as it is being developed."

Klee noted that parties in the case would be reluctant to share information with him if rivals were allowed to be present at every meeting.

"We are very, very sensitive to the fact that this case is heavily contested," he said.

Tribune Co. Buyout to be Studied by Trustee-appointed Examiner

(Reuters) — U.S. Trustee William Harrington, a Justice Department monitor of bankruptcy cases, has appointed an examiner to investigate whether the 2007 leveraged buyout (LBO) of Tribune Co. led by real estate developer Sam Zell left the media company insolvent.
The examiner, Kenneth Klee, is an attorney at Los Angeles-based lawfirm Klee, Tuchin, Bogdanoff & Stern LLP. He also teaches bankruptcy law at the University of California at Los Angeles.

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.

In April, Tribune and its creditors agreed to appoint an examiner to determine if Tribune's management, board of directors, lenders and advisors were liable.

Bondholders have blasted the deal as "virtually no money down LBO" and blamed the deal for Tribune's bankruptcy and their investment losses.

The junior bondholders, who hold $1.2 billion of debt, have said their best hope of a recovery from the bankruptcy lies in disallowing billions of dollars of senior claims.

They are seeking to prove the senior lenders extended loans to finance the leveraged buyout, knowing it would render the company insolvent.

The senior lenders will receive nearly all of the company's equity under the proposed reorganization plan, which will wipe out billions of dollars in debt.

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.

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.

TNG-CWA Forces Bankrupt Tribune to Abandon Bonus Scheme

A federal bankruptcy court judge in Delaware has dismissed a motion by Tribune Co. to implement a $21 million management incentive bonus plan, to which the Washington-Baltimore Newspaper Guild (WBNG) Local 32035 had objected, an attorney for the union told BNA April 5 (In re Tribune Co., Bankr. D. Del., No. 08-13141 (KJC), 3/23/10).

TNG-CWA won a victory against corporate greed and mismanagement with its successful court challenge blocking $21 million in executive bonuses that bankrupt Tribune Company wanted to pay to some 23 executives.

Intervention by TNG-CWA Local 32035 before the bankruptcy court forced Tribune to withdraw the bonus plan. The local represents about 230 workers at the Baltimore Sun and was the only union on the nine-member creditors committee. Before it filed for bankruptcy, Tribune cut hundreds of jobs at the union-represented Sun as well as at the Los Angeles Times, Chicago Tribune and other operations.

When the company sought to pay the executive bonuses, the union intervened. Tribune withdrew its bonus plans, though the judge said the company could try again when it emerges from bankruptcy. TNG-CWA President Bernie Lunzer said the Guild will be watching.

Note: The U.S. Banktuptcy Court has already approved Sam Zell's request for $ 45.6 million dollars in executive bonuses for Tribune's management team, the $ 21 million was to be ADDTIONAL EXECUTIVE BONUSES!

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141. (Reporting by Santosh Nadgir in Bangalore; Edited by Roshni Menon)