Wednesday, November 10, 2010

Creditors Pitch Rival Tribune Reorganization Plans

WILMINGTON, Del., Nov 10 (Reuters Legal) - The home stretch of Tribune Co's two-year bankruptcy started to feel like a political campaign as creditors began stumping for votes in a race to reorganize the newspaper publisher and broadcaster.

In an unusual ending to a fraught Chapter 11 process, four reorganization plans will be mailed out to creditors whose votes will help determine how to bring the owner of the Chicago Tribune and Los Angeles Times out of bankruptcy.

In most bankruptcies, creditors vote on one plan.

The company collapsed into bankruptcy in 2008, a year after real estate developer Sam Zell bought the U.S. media company with a pile of debt that quickly proved unsustainable.

The backers of the rival plans filed letters with Delaware's bankruptcy court pitching their proposals. The letters will be mailed with ballots, pending approval by Judge Kevin Carey.

The plans differ in how to assign blame for the bankruptcy and whether it is better to settle or sue.

The company's plan proposes to settle many pending legal claims, heading off possibly years of court skirmishes. The backers of that plan -- the committee of unsecured creditors, JPMorgan Chase & Co and hedge funds Angelo, Gordon & Co and Oaktree Capital Management -- argue it offers the quickest way to ensure creditors get paid.

In contrast, the plan proposed by the Aurelius Capital Management hedge fund recommends sending lawyers after nearly everyone who benefited from the buyout.

Aurelius Chairman Mark Brodsky said in the fund's letter that Tribune has proposed a "starkly one-sided settlement" process that would make the banks pay bondholders, led by Aurelius, only about $420 million. Brodsky argues that bondholders stand to recover their full $2 billion if they win most of their legal claims.

"I analogize this to Bonnie and Clyde being caught robbing a bank and then negotiating plea bargains with each other rather than with the prosecutor," he wrote.

Others took aim at Aurelius's promises of winning big legal awards.

A plan by the Step One Lenders, which funded the first part of Zell's buyout, essentially agrees with Aurelius that lenders who rendered Tribune insolvent should not be in the front of the line for repayment on their claims.

The Step One plan argues that those lenders are the ones who funded the second part of Zell's deal. They say the first part of Zell's buyout did not leave Tribune insolvent, according to a court-appointed examiner.

"The Aurelius Plan 'conveniently' provides Aurelius with control of the Litigation Trust, meaning it is Aurelius's lawyers who are hoping to be paid all of the Trust's litigation fees," said the letter from the Step One Lenders.

A letter from Bridge Loan Lenders promoted their position on the divide between lenders and bondholders in the order of repayment. They consider their proposed settlement the only fair way to bring the company out of bankruptcy.

The company's letter notes that no party has signed on to the Bridge Loan Lenders plan, making payouts under the plan "highly speculative, at best."

Rivals to the company's plan pointed out the beneficiaries of the company's plan were the backers, who will not have to face litigation for their role in the leveraged buyout.

Tribune filed for Chapter 11 bankruptcy in December of 2008. The case is In Re Tribune Co, U.S. Bankruptcy Court, District of Delaware, no. 08-13141. Tribune's lead bankruptcy counsel is James Conlan of Sidley Austin in Chicago.

(Reporting by Tom Hals of Reuters; Additional reporting by Jeff Roberts of Reuters Legal)


Tribune Settlement Plan Statement
Step One Plan Statement
Bridge Plan Statement
Litigation Plan Statement

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