By Tom Hals - Reuters
Bondholders Seek Return of Fees Paid to Defend Against Claims of Bondholders
WILMINGTON, Del., March 26 (Reuters) Tribune Co-bondholders asked a judge on Friday to force the return of $117 million the publisher made available to banks for their legal fees stemming from the company's 2007 leveraged buyout.
Bondholders said that the company agreed with JPMorgan Chase & Co (JPM.N) to make the payments through a subsidiary that is not part of the bankruptcy to elude what they said was required court approval for the payments.
The dispute stems from the company's 2007 acquisition that put real estate developer Sam Zell in control of the publisher of the Chicago Tribune and Los Angeles Times.
The Zell deal also piled $8 billion in loans on the company, subordinating the claims of bondholders.
Tribune filed for bankruptcy in 2008.
The company expects to file a plan of reorganization by the end of March, and the biggest issue is likely to be the treatment of buyout-related claims by bondholders.
The bondholders have said their main hope for a recovery in the bankruptcy hinges on litigation against banks and Tribune management for their role in the buyout which bondholders blame for the company's bankruptcy.
The publisher told the official committee of unsecured creditors and the government official that oversees the bankrupt about the fee arrangement, a Tribune lawyer told the judge.
"That's precisely why we went to the committee and to the trustee," said James Ducayet, of Sidley Austin, which represents Tribune. If they objected to the payments, "they would have let us know noisily."
Bondholders called it ironic that money from the company, which could be used to pay bondholders, was being used to defend banks against bondholders' claims.
Management knew "that there was going to be a contest over this leveraged buyout and they understood their officers and directors would be implicated in that contest and they understood they wanted a partner in this restructuring process," said Daniel Golden, an attorney for Akin Gump Strauss Hauer & Feld, which is representing Centerbridge Credit Advisors, a bondholder. "And they bought this partner with these payments."
An attorney for JPMorgan called that the "the most outrageous allegation of the day."
Tribune's subsidiary, TCV, has paid about $24 million to the banks that arranged the leveraged buyout.
Tribune agreed in December to halt payments from the subsidiary, although cash continues to accumulate there.
The judge, Kevin Carey, urged the parties to reach an agreement on their own and took the matter under advisement.
The case is In re Tribune Co, U.S. Bankruptcy Court, District of Delaware, No. 08-13141. (Editing by Derek Caney)
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