By Lucas Shaw
The Wrap 
U.S. bankruptcy judge Kevin J. Carey has rejected Tribune Co.’s plan for reorganizing the company so that it can emerge from bankruptcy. A rival proposal from Tribune creditors did not pass muster either.
Tribune, a media empire that includes newspapers like the Los Angeles Times and Chicago Tribune, as well as more than 20 broadcasting properties, filed for Chapter 11 bankruptcy in December of 2008. That came a year after real-estate tycoon Sam Zell took the company private.
Carey began his 126-page opinion with a story, “The Scorpion and the Fox.” He said there is no moral to it, but that it reveals an “inescapable facet of human character: the willingness to visit harm upon others, even at one’s own peril.”
He then detailed the many ways in which neither plan could settle a dispute that is now almost three years old, and threatened to appoint a trustee to resolve the case if neither side can reach a suitable resolution.
Under both plans, JP Morgan and other lenders would be the majority owners.
Judge rejects reorganization plans for Tribune
BY DAVID ROEDER, Business Reporter
Chicago Sun-Times
October 31, 2011
Because of a ruling issued on Halloween, Tribune Co.’s “deal from hell” lives on.
A federal bankruptcy judge Monday rejected two competing plans for the reorganization of Tribune, the Chicago-based publishing and broadcasting company that was driven into Chapter 11 by mogul Sam Zell’s ill-timed and over-leveraged buyout.
Zell called the $8.2 billion sale the “deal from hell” upon its consummation in 2007.
But that was before the real fun even started. A year later, the Tribune, saddled with $13 billion in debt and with advertising in a steep, industry-wide fall, filed for bankruptcy. In the three years since then, creditors have wrestled over who gets what in a reorganized company and how to handle lawsuits against the parties who approved the original deal.
U.S. Bankruptcy Judge Kevin Carey said in a 126-page opinion that he could approve neither of the two plans presented to him. His ruling suggested that the company could be in for months of costly court proceedings and uncertainty about its fate. Many observers suspect that when creditors do get control, they will break up its properties and perhaps sell the broadcast stations, which generate the bulk of the profit.
But Carey tried to downplay any conclusion that his ruling would invite more delay. The Tribune, he wrote, “must promptly find an exit door to this Chapter 11 proceeding. The court is equally resolute that, if a viable exit strategy does not present itself with alacrity, and despite any disruption to management, as well as the added cost and delay this might inevitably occasion, the court intends to consider, on its own motion, whether a Chapter 11 trustee should be appointed.”
Tribune owns the Chicago Tribune, the Los Angeles Times, other major newspapers and more than 20 broadcasting stations, including WGN television and radio. Company spokesman Gary Weitman said late Monday, “We are reviewing the judge’s decision and will have no comment until we have finished studying it.”
Both completing plans would have left Tribune under the control of JPMorgan Chase & Co. and hedge funds Angelo, Gordon & Co. and Oaktree Capital Management, the leading unsecured creditors. But a plan advocated by other debt holders, including Aurelius Capital Management LP, seeks to recover more money in litigation.
Aurelius is known for playing legal hardball.Aurelius was emboldened by the findings of a court-appointed examiner, who ruled last year that part of the Zell buyout may have been a “fraudulent conveyance” that automatically rendered Tribune bankrupt.
Carey rejected both plans for several reasons, some technical, but spoke more favorably of the leading creditors’ proposal. He said it provides Tribune “with more certainty regarding preservation of estate value and a better foundation for revitalizing business operations.”
A hearing in the case is scheduled for Nov. 22 in Wilmington, Del.
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