Bloomberg Bussiness Week
Nov. 29 (Bloomberg) -- Tribune Co.’s bankruptcy judge threatened to take over drafting reorganization documents for the publisher unless four groups of creditors stop bickering over wording in the materials.
U.S. Bankruptcy Judge Kevin J. Carey in Wilmington, Delaware, told warring groups of banks, hedge funds and other investors that he may rewrite their disclosure statements for the company’s four competing reorganization plans.
“I will do it myself if we can’t get to a place where I’m satisfied,” Carey said at a hearing today.
The judge must approve the statements before Tribune creditors vote on the proposals. Carey will consider the votes when he holds a hearing in March to approve one of the plans.
The statements describe how each of the groups would reorganize and split ownership of the Chicago-based newspaper and television company. The documents are designed to help creditors decide how to vote.
After listening to attorneys for the groups argue for about six hours, Carey ordered them to change some of the wording in their disclosures and resubmit them later this week. He scheduled a hearing for Dec. 6 to make a final ruling about whether the proposals contain enough information to be sent to creditors for a vote.
Unsecured Creditors
Carey also gave the official committee of unsecured creditors permission to sue current and former officers of the company to claw back past payments related to bonuses and stock options. Carey also gave the committee permission to sue lawyers and financial advisors involved in the company’s bankruptcy filing to try to recover fees they were paid.
The four plans have been offered by competing hedge funds that disagree on how to resolve allegations that the company’s 2007 leveraged buyout, which added more than $8 billion to Tribune’s debt, caused the company’s bankruptcy and didn’t benefit anyone except shareholders and real estate billionaire Sam Zell, who led the buyout.
On July 27 bankruptcy examiner Kenneth N. Klee released a report that bolstered the position of lower-ranking creditors. Those creditors, including noteholders owed $1.2 billion, want JPMorgan Chase & Co. and the other buyout lenders to lose their position as first-to-be repaid because of the 2007 transaction.
Tribune owes the hedge funds, lenders and other creditors about $12 billion. Most of that debt will be wiped out under all of the reorganization proposals in exchange for stock, cash and new loans.
`JPMorgan, Oaktree
The plan proposed by Tribune is backed by JPMorgan and hedge-fund operators Angelo Gordon & Co. and Oaktree Capital Management LP. Their proposal is also backed by the majority of a panel of unsecured creditors.
Aurelius Capital Management LP, a hedge fund led by investor Mark Brodsky, is sponsoring a proposal along with other pre-buyout bondholders who are among Tribune’s lowest-ranking creditors.
A third plan is sponsored by hedge-fund manager King Street Capital LP. The fourth is backed by a dissident group of senior lenders who have broken with JPMorgan.
The bankruptcy has become a “four-ring circus,” David LeMay, an attorney for the official committee of unsecured creditors, told the judge today. “There are more plans in this case than I have ever seen in my life,” said LeMay, a partner at Chadbourne & Parke LLP in New York.
Exit From Bankruptcy
All the plans would let the company’s newspapers and television stations leave bankruptcy while lawsuits related to the buyout go forward. They differ in how $6.75 billion worth of stock, cash and a new term loan is to be divided among the creditors and lenders.
Tribune owns the Chicago Tribune and the Los Angeles Times, as well as TV and radio stations and stakes in cable channels. As part of its bankruptcy, the company sold most of its stake in the Chicago Cubs Major League Baseball team.
Under Tribune’s plan, some targets of the lawsuits, including JPMorgan, would be released from legal liability for their actions related to the buyout.
Klee concluded in his report that the second part of the two-stage buyout was an intentional fraudulent transfer because it added more debt to Tribune than it could handle and benefited only shareholders, Zell and the banks that organized the loans.
Klee found that various parties involved in the buyout acted in bad faith. Creditors are unlikely to win damages from Zell, according to the report.
Zell’s attorney, David J. Bradford, said today in court that his client, who has called the buyout “the deal from hell,” was exonerated by the Klee report.
The case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).
--Editors: Stephen Farr, Charles Carter.
To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net .
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.
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