Senior noteholders led by Aurelius Capital Management have proposed an alternative plan that would preserve legal claims related to the buyout. It would offer creditors some money now but reserve much of Tribune's enterprise value in a litigation trust that would be used to pursue the lawsuits, which could result in significant recoveries for creditors.
Another plan is proposed by King Street Acquisition Co. and other holders of $1.6 billion in unsecured bridge loans used in the second stage of the buyout, the phase the examiner found most troubling. That plan would allow the settlement of legal claims against senior lenders and bridge lenders while allowing lawsuits to proceed against other parties, including Zell and Tribune officers and directors.
The fourth plan was submitted by senior lenders who financed the first step of the buyout, in which the examiner found no wrongdoing. It would preserve the right to sue banks that financed the final stage of the buyout at a time when the examiner said it seemed clear that Tribune would have trouble repaying the resulting debt.
The judge in Tribune Co.'s nearly 2-year-old bankruptcy case struggled openly at a key hearing Monday as he attempted to referee what one participant described as a "four-ring circus" and another called "total chaos."
Faced with a proceeding that has splintered into four competing restructuring plans brought by sparring creditor factions, U.S. Bankruptcy Judge Kevin Carey acknowledged that moving the complex case forward efficiently is taxing the powers of the bench.
"It's an unwanted meeting with my own limitations," he said at one particularly frustrating juncture during a seven-hour hearing in a bankruptcy courtroom filled to capacity with lawyers representing constituents in the Chicago-based media company's Chapter 11 case.
Experts say the Tribune Co. case is developing into Exhibit A for how bankruptcy law has evolved since 2005, when Congress mandated a limit for how long a court could grant debtors the exclusive right to file their own restructuring plan.
The logic behind the change was that it would speed up ever-more complex cases by giving competing creditors the chance to file their own plans if the debtor failed to do so after 18 months. But since Tribune Co.'s exclusivity ran out in August, hedge funds and other investors that have bought up claims have filed three competing plans. Most participants agree the added complexity and litigiousness have bogged down an already plodding case.
Monday's hearing in Delaware was an attempt to resolve differences between the four different groups of plan proponents over the language contained in their so-called disclosure statements, documents that describe the architecture of a given restructuring plan and what kind of recovery it promises for various classes of creditors.
That is difficult enough in a regular case with a single restructuring plan. But the challenge is exponentially greater with four plans, bankruptcy experts said, since objections mount and the openings for new legal challenges multiply.
Carey did resolve a long list of objections to the various plans, including granting a request from Tribune Co. Chairman Sam Zell. The Chicago real estate magnate had asked that the various plan documents contain language pointing out that an independent examiner in the case said it was unlikely that Zell could be found liable for charges stemming from the collapsed 2007 leveraged buyout of the company, which owns the Chicago Tribune, Los Angeles Times and other media properties.
The plans already point out that Zell is nonetheless vulnerable to litigation.
But Carey failed to accomplish another goal: figuring out how to present the plans to creditors large and small in a way that is comprehensible. The parties have agreed to create one common disclosure statement and then to append smaller, individualized documents describing the four plans. Carey complained that the resulting package has grown to more than 400 pages, not including attachments and exhibits.
"I'm disappointed I can't reach out and grab it myself," Carey said after abandoning an idea to edit down the documents personally. "There's just so much to wade through."
The Tribune Co. case has also presented Carey with another challenge: How to deal with statements accompanying the plans that forcefully advocate for various creditor positions.
The statement accompanying a plan put forward by Aurelius Capital Management, for instance, includes a letter from the firm's chairman, Mark Brodsky, that quotes from philosopher Edmund Burke and the fund's namesake, Marcus Aurelius, about the virtue of triumphing over evil. It talks about management "cover-ups" and holding competing creditors accountable for "wrongdoing." Other parties also dialed up the rhetoric in pitching their plans.
Acknowledging that plan proponents should have some ability to sell their plans to other creditors, Carey sought to halt the rhetorical arms race. He encouraged the parties to edit the statements to make them more appropriate, and he promised to go over them line by line to make sure they are not misleading to creditors.
He also said he would include a statement in the vote-solicitation packages explaining what the court endorses and what it doesn't. Once those packages go out, creditors will vote on the plans, which will then be considered by the judge at confirmation hearings in March.
Carey dispensed with other business at the hearing. He approved two standing motions brought earlier by the Official Committee of Unsecured Creditors reserving the right to pursue more than $200 million in prepetition claims against Tribune Co. managers and other insiders, as well as professionals that helped with the leveraged buyout and bankruptcy.
But he put off until next week the next big challenge: Deciding on a complex set of voting procedures for the case and resolving rules for how plan opponents can take discovery as they prepare for the confirmation hearings.