Friday, July 30, 2010

Tribune Report Sealed; Bankruptcy Plan Called Dead

By Tom Hals

* Confidentiality claims delay releasing examiner's report
* Creditors want full disclosure before voting on plan
* Junior creditors call reorganization plan 'dead'

WILMINGTON, Del., July 29 (Reuters) - An examiner's report that found dishonesty in Tribune Co's (TRBCQ.PK) leveraged buyout will remain under wraps until at least next week, a bankruptcy judge ruled on Thursday, as creditors declared the company's reorganization dead.
Judge Kevin Carey of the U.S. Bankruptcy Court in Delaware also said he would consider extending the Aug. 6 deadline to vote on the company's reorganization. Such a ruling would come at a hearing he scheduled for Tuesday.

The examiner, UCLA Law School professor Kenneth Klee, released a 20-page summary on Monday and said the court needed to resolve claims of confidentiality before unsealing the full 1,100-page report.

The report concluded Tribune did not act forthrightly in getting an independent opinion about the company's solvency. The report also found a court was somewhat likely to find part of the $8.2 billion leveraged buyout that put developer Sam Zell in control of the Chicago Tribune and Los Angeles Times owner constituted intentional fraudulent transfers. [ID:N27259133]

Klee did not mention any names.

Creditors are being asked to approve a proposed reorganization that would give control to senior lenders. A sliver of the company would go to senior bondholders in return for their dropping legal claims stemming from the company's bankruptcy.

The report's summary was enough for a lawyer for junior bondholders, who will get nothing under the proposed reorganization, to call for full disclosure. Otherwise, there is a risk of a "litigation morass" in which junior creditors are tempted to battle to remove senior claims higher up the ladder.

"The ladder has been upended," said Robert Stark of Brown Rudnick, which represents junior bondholders. "The settlement is dead."

Lenders with senior claims also argued at Thursday's hearing for full disclosure of the report and for an extension of the deadline to vote on the Tribune reorganization.

"We can read the conclusions, but we don't know how Mr. Klee got there," said James Johnston of Hennigan, Bennett and Dorman LLP, which represents a group of investors who hold Tribune loans.

"It's like reading Playboy Magazine with big black bars over all the pictures," said Johnston.
A lawyer for Klee told the hearing that the examiner did not view any section of the report as confidential, although some exhibits might be.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141. (Reporting by Tom Hals; Editing by Lisa Von Ahn)

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