Chandler Bigelow, a company treasurer who was promoted to chief financial officer after Zell took over, and former Senior Vice President of Finance Donald Grenesko falsely assured the deal's financiers that the company had an opinion from Morgan Stanley that it could refinance debt in 2014, the examiner said. The assurance, which Morgan Stanley told the examiner it never gave, was essential for Zell to complete his debt-loaded takeover.
A full version of the report by examiner Kenneth Klee, a Los Angeles attorney, was released Tuesday on orders of U.S. Bankruptcy Judge Kevin Carey. A censored version was filed with the court July 26 because creditors, who must vote on a Tribune reorganization, argued to keep some portions confidential.
Carey, however, ruled that the importance of the material requires full access. The contents already have upset negotiations among creditors for stakes in the media company post-bankruptcy. It also will prolong Tribune's 20-month sojourn in bankruptcy court.
To give creditors time to review the full report, Carey delayed until Oct. 4 a scheduled start in hearings to confirm a reorganization. They had been set to begin Aug. 30. The judge pushed back by two weeks until Aug. 20 a deadline for creditors to vote on a plan.
The findings are expected to give junior creditors left with nothing in the proposed reorganization ammunition to demand a share of the company. Tribune's proposed plan would assign 91 percent ownership to primary lenders who hold more than $10 billion in its debt.
The full version of the Klee report casts a harsh light on Bigelow and Grenesko as the two who worked to close the last stage of the deal, called Step Two. It called for $3.6 billion in financing to, among other things, pay Tribune stockholders $34 a share. Both men, Klee noted, were in line for financial gain in closing the deal; each was entitled to a $400,000 bonus, while Grenesko received $4.47 million for selling his shares.
Klee does not blame Zell or aides for involvement in any fraud. But he notes the pressure they applied to complete the sale and suggests Bigelow cooperated because he expected Zell would retain him at Tribune. Klee has a memo from Zell associate Nils Larsen, now a Tribune executive vice president, that listed Bigelow as one of three Tribune insiders who could be trusted to "drink the Kool-Aid."
Bigelow and Grenesko could not be reached. Grenesko resigned from the company in 2008. A Tribune spokesman said some of the examiner's decisions were based on ''incomplete information'' and that the company will have more to say about dealings with Morgan Stanley.
A statement to employees from Chief Executive Randy Michaels and Chief Operating Officer Gerald Spector said the company agrees with some of Klee's conclusions and disagrees with others. "We are continuing to transform this company and build its value -- our creditors recognize that. In fact, it makes them all the more interested in holding an ownership stake in Tribune once we emerge from Chapter 11."
In December 2007 meetings leading to a crucial Tribune board meeting, Bigelow and Grenesko stated or implied that Morgan Stanley said Tribune debt could be refinanced, Klee said. In fact, Morgan Stanley pointedly refused to go that far, Klee said. His report said the false assurances were given to the deal's lead banks as well as to Valuation Research Corp., a firm hired to give a solvency opinion.
Bigelow and Grenesko "pushed the envelope beyond what Morgan Stanley had said to them, in order to get past the final major hurdle standing in the way of a Step Two closing," Klee said. "Having succeeded in doing so, the persons involved then were able to create the impression that Morgan Stanley agreed that Tribune could successfully refinance its debt by referring to conversations between Morgan Stanley and management.
"Two weeks later, Tribune then went further and apparently told the lead banks that Morgan Stanley actually had evaluated and concurred with VRC's solvency opinion."
Klee called VRC's work "highly suspect," saying the firm never questioned a financial projection from Tribune managers. It also spoke harshly of the Tribune board, including member William Osborn, head of its committee overseeing the sale.
Members "failed to discharge their duties to carefully scrutinize the information presented by management and VRC," Klee said.
The report also details trouble Tribune had in finding a firm willing to deem the company solvent. Investment bank Houlihan Lokey declined the work and expressed doubts about the solvency.
A Houlihan Lokey executive stated in an e-mail to a colleague that "we may be the ones to 'kill the deal' so to speak and [I'm] not certain we want to be involved in that mess."
TALE OF THE TAKE
What Tribune Co. executives got to complete the Sam Zell deal.
Dennis J. FitzSimons, Chairman, President, and CEO received no bonus, but got 266,073 shares of the new company and a payment of $ 9,046,482.00.
Chandler Bigelow, CFO, did not receive shares, but walked away with a bonus of
Donald C. Grenesko, Senior VP, got a bonus of $ 400,000.00, plus 131,391 shares and a payment of $ 4,467,294.00.
Scott C. Smith, President of Tribune Publishing, did not receive a bonus, but got 129,542 shares and $ 4,404,428.00.
Crane H. Kenney, Senior VP, Secretary, and General Council receied a bonus of $ 600,000.00, 29,763 shares and $ 1,011,942.00.
Source: Bankruptcy examiner Kenneth Klee
By J. Patrick Coolican
The Chicago Tribune reports that A new trove of documents in the Tribune Co. bankruptcy case shows former and current executives used overly optimistic projections and an investment's bank's stamp of approval to allow a group led by Sam Zell to buy the company even though it was almost immediately insolvent.
The company and executives involved disagree with the conclusions.
But read this astounding passage:
"Although only confidence flowed from deal participants in 2007, the report shows that what held the complex, two-stage transaction together was mostly fear of getting sued if it fell apart. The banks that had agreed to finance the deal wanted out, the documents show, and in the offices of Sam Zell, the Chicago real estate magnate who orchestrated the (leveraged buyout), debate ensued over whether to bail."
Even for those not expert in the arcane leveraged financing of the likes of Zell, the red flags, primarily the collapsing advertising economy, were everywhere.
This New Yorker profile of Zell was filled with portents.
Tags:media, Sam Zell, Tribune bankruptcy
Bankruptcy Examiner: Tribune Management 'Not Honest' in Pushing Through 2007 DealEditor & PublisherExaminer Kenneth Klee portrays a management intent on pushing through the deal structured by real estate mogul Sam Zell.
Examiner says Tribune Co. executives pushed through bad deal
Los Angeles Times - Michael Oneal - Aug 4, 2010
The company, which owns the Los Angeles Times, contests the bankruptcy report's conclusion that problems with the transaction were glossed over.
Citi, Zell and Tribune: Smelled 'Like Divorce Work.'
Wall Street Journal (blog) - Mike Spector - Aug 3, 2010
Citigroup thought about breaking up with Sam Zell's ultimately disastrous takeover of Tribune Co. just weeks before the deal closed.
Tribune report unsealed, bankruptcy exit delayed
Reuters - Tom Hals, Bernard Orr - Aug 3, 2010
WILMINGTON, Del., Aug 3 (Reuters) - A 1000-page examiner report into the bankruptcy of Tribune Co (TRBCQ.PK) was unsealed on Tuesday.
Judge removes secrecy around Tribune report
The Associated Press - Randall Chase - Aug 3, 2010
WILMINGTON, Del. — The judge overseeing Tribune Co.'s bankruptcy ordered Tuesday that an independent examiner's report probing the media conglomerate's 2007 be unsealed.
Fear and rosy reports plagued Tribune deal
UPI.com - 19 hours ago
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