Examiner Finds Evidence Of "Dishonesty" In Tribune Sale

(Reuters) - The court-appointed examiner investigating Tribune Co's bankruptcy said he has found some evidence of dishonesty in the 2007 leveraged buyout of the company, court documents showed.

David Lieberman reported that Tribune's Chapt. 11 bankruptcy case is getting interesting. A court-appointed examiner says that the $8.2 billion leveraged buyout that put real estate investor Sam Zell in charge of the media giant in 2007 was doomed from the start, according to a story in the Chicago Tribune.

The examiner's 700-page report to the U.S. Bankruptcy Court in Delaware slams the senior executives at the time of the deal for "dishonesty and lack of candor."

Wall Street Journal reporters, PEG BRICKLEY, SHIRA OVIDE and MIKE SPECTOR wrote that the investigator, Kenneth Klee, said in a report Monday that it's "highly likely" that Tribune was "rendered insolvent and without adequate capital" as a result of the second half of the debt-reliant deal, which was led by real-estate investor Sam Zell. The company wasn't able to handle the debt load as the economy turned south, and Tribune filed for bankruptcy in December 2008.

The report, which investigates whether real estate developer Sam Zell's 2007 leveraged buyout of Tribune left the media company insolvent, is of particular interest to junior bondholders, who say their best hope of a recovery from the bankruptcy would lie in billions of dollars of senior claims being disallowed.

Tribune's management, board and 2007 financial advisers are cast in a harsh light in Mr. Klee's report. He said that part of financial projections made by Tribune management in October 2007 were too rosy and, while not deceitful "bears the earmarks of a conscious effort to counterbalance the decline in Tribune's 2007 financial performance and other negative trends in Tribune's business, in order to furnish a source of additional value to support a solvency conclusion."

Bankruptcy examiner Kenneth Klee, however, said he did not find any credible evidence against the large stockholders, lead banks, the financial advisers, as well as the Zell Group.

Tribune's businesses include the Chicago Tribune and Los Angeles Times newspapers, as well as television stations such as the superstation WGN and WPIX-TV in New York.

Klee said Tribune did not act forthrightly in procuring the solvency opinion issued by Valuation Research Corp (VRC).

Klee said he found evidence indicating that Tribune's senior financial management did not apprise the Tribune board and special committee of relevant information underlying management's October 2007 projections on which VRC relied in giving its solvency opinion.

However, Klee also said he "found that other aspects of management's projections, while aggressive, do not support the conclusion that the senior financial management at Tribune prepared them in bad faith."

The court-appointed examiner investigating Tribune Co's (TRBCQ.PK) descent into bankruptcy said he has completed his report but cannot make it fully public because various parties are bickering over its contents.

Mr. Klee described frustrations in compiling his report such as requests by buyout participants to classify even innocuous documents as highly confidential, and scores of pages at a time are left blank because they have been redacted.

The report, which investigates whether real estate developer Sam Zell's 2007 leveraged buyout of Tribune left the media company insolvent, is of particular interest to junior bondholders, who say their best hope of a recovery from the bankruptcy would lie in billions of dollars of senior claims being disallowed.

Kenneth Klee, the examiner, filed a redacted version of his report on Monday with the U.S. bankruptcy court in Delaware, a Friday court filing showed. Only the judge and a limited number of closely involved parties will see the entire report initially.

Klee said many people believe some material used in the report should remain confidential. He said he hopes to resolve these issues at an Aug. 9 hearing, following which the report would be made public.

Tribune on Monday objected to the delay, saying that Tribune and other parties, including the official committee of unsecured creditors, need the report, the exhibits and the transcripts as soon as possible to prepare for a hearing on confirming its plan of reorganization.

Tribune asked the court for an order authorizing the report's immediate disclosure, saying that the confidentiality measures already put in place, such as a secure document website, are enough to protect sensitive information.

Klee said almost 4.3 million pages of documents have been produced as part of the his investigation.

In a separate court filing on Friday, Klee asked the bankruptcy court to formally release him from his duties, and shield him from possible lawsuits arising from his work as examiner.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.
(Reporting by Sakthi Prasad in Bangalore; Editing by Muralikumar Anantharaman)