Tribune Bankruptcy Settlement Collapses - Back To Square One

By Kristen MacBeth
http://www.bankruptcyhome.com/

A settlement that was crucial to the proposed reorganization plan of Tribune Co. has crumbled.

The media conglomerate had planned to file amendments to its bankruptcy plan, which could have potentially satisfied the complaints of several of its creditors, but couldn't come to an agreement.

Two of the company's largest creditors - JPMorgan and Angelo, Gordon and Co. - have backed out of the settlement, rendering it irreparable, according to a report in the Los Angeles Times.

Tribune Co.'s lead attorney said that the company may take its bankruptcy case into extended litigation if an agreement between it and its lenders can't come to an agreement soon.

The Times, which is owned by the media giant, said that what happens next is up to Tribune Co., making the case's future uncertain at best.

According to an article by JEREMY W. PETERS in the Friday, August 20, 2010 New York Times, Two creditors, JPMorgan Chase and the investment firm Angelo, Gordon & Company dropped out of the agreement, which would have made them part owners of the reorganized company. At a hearing in Delaware on Friday, James Conlan, Tribune’s attorney, said the company “had tried mightily to bring the parties together.” But he said those efforts failed.

For now, Tribune will go it alone developing a plan, which it will submit to the court by Friday, August 27, 2010. Creditors will eventually vote on whether to accept the settlements the company proposes and could put forth plans of their own.

“This process is moving more slowly and has become noisier than we had hoped,” Randy Michaels, Tribune’s chief executive, and Gerald A. Spector, the company’s chief operating officer, said in an e-mail to employees on Friday that sought to reassure them of the company’s stability. “Next week, we’ll file our monthly operating report for July and once again, our financial results will be strong. All of our media businesses are profitable, and our creditors recognize how well we are performing.”

Adding another twist, a lawyer for a group of creditors told the judge on Friday that his clients were prepared to move forward with a lawsuit claiming the sale of Tribune to the real estate mogul Samuel Zell was a fraud because it saddled the company with too much debt.

A Businessweek report said that Tribune Co. will rewrite its reorganization plan for submission on August 27, 2010. The revision is expoected to further divide the company among creditors to better satisfy their demands. The case has already seen several deadlines for an agreement to be reached delayed.

The media company's revised plan could foreshadow trouble for top-ranking lenders tied to the 2007 leveraged buyout that pushed Tribune into financial trouble. Mr. Conlan, of law firm Sidley Austin LLP, said if no accord is reached on the amended restructuring plan, Tribune will consider suing over the LBO.

The most likely targets of a lawsuit are lenders who, until recently, supported Tribune's Chapter 11 plan and were in line to take over the company, had the plan gone through. That includes J.P. Morgan Chase & Co., which yanked its support from Tribune's plan this week.

Wall Street Journal reporter Peg Brickley wrote that a bankruptcy probe found $3.6 billion of Tribune's top-ranking debt was likely tainted with fraud, which touched off a frenzy of shifting alliances in a bankruptcy case that has long been contentious. Tribune's Chapter 11 plan was designed to shield J.P. Morgan, Sam Zell, Tribune executives, and others connected to the LBO from damage claims.

Now Tribune is in one camp, leading negotiations with creditors who have been trying to get the company to sue over the LBO. Former plan supporters J.P. Morgan and the official committee of unsecured creditors, however, are pondering the prospect of filing a Chapter 11 reorganization plan of their own without the company's official backing, they said.

"The company is trying to rally enough support to push the plan through in November", Mr. Conlan said.

On Friday, U.S. Bankruptcy Judge Kevin Carey formally ended the appointment of Kenneth Klee, the investigator who conducted the probe that shook up Tribune's bankruptcy. His report gave some creditors ammunition to push for better financial recovery than they had been offered under Tribune's original plan of reorganization.

Mr. Klee wanted a formal end to his role, which began when the judge asked for help in evaluating whether Tribune's plan embodied a reasonable settlement of legal claims over the ill-fated LBO.

"He doesn't want to be your piñata," Judge Carey told attorneys for the company.

Sources close to the situation told Los Angeles Times reporter Michael Oneal that despite the discord and shifting alliances, there are signs that the new negotiations among creditors may be showing some promise.

The most powerful holdout to the original settlement was a large group of senior creditors led by Oaktree Capital Management. The Credit Agreement Lenders, as they dubbed themselves, have argued that while they have little exposure to the leveraged buyout claims, they are being asked by JPMorgan and other parties who do have exposure to help pay the $450 million it took to appease junior creditors.

Long before Tribune lost its exclusive right to file a reorganization plan, Oaktree asked Carey for permission to file a competing plan that would largely ignore the junior claims. Now that Oaktree is free to file a plan, it hasn't — at least so far. The sources said that might indicate that for now it was willing to listen to other arguments.

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