Independent Examiner May Probe Tribune's Bankruptcy Plan

Bloomberg News

Newspaper publisher Tribune Co. may get an examiner following yesterday's hearing in Delaware bankruptcy court.

Although he didn't rule, U.S. Bankruptcy Judge Kevin Carey said he agreed with the U.S. Trustee's argument as to why there should be an investigation by an independent examiner. Carey told both sides to confer and try to reach an agreement about the scope of an examination.

If there is no agreement, Carey will hold another hearing on April 22 where he will decide whether there should be an examiner.

Tribune filed a proposed Chapter 11 plan on April 12 to implement a settlement negotiated with some creditors. Even before the plan was filed, holders of $3.6 billion in pre-bankruptcy secured debt announced their opposition to the plan and the settlement.

The lenders, who say they have 42 percent of the secured debt under the May 2007 credit agreement, contend that all of the consideration flowing to unsecured creditors would come out of their take, while other participants in the allegedly defective leveraged buyout get away scot-free, protected by releases and indemnities.

Some creditors contend that the $13.8 billion leveraged buyout in December 2007, led by Sam Zell, included fraudulent transfers because operating subsidiaries pledged their assets for new loans and received no commensurate value in return.

Tribune is the second-largest newspaper publisher in the U.S. It listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. The company owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations including WPIX, KTLA, and WGN.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Tribune Lenders Can’t Offer Rival Reorganization Plan

By Steven Church - Bloomberg

April 13 (Bloomberg) -- Tribune Co. won’t face a competing reorganization proposal from a group of hedge funds opposing the publisher’s plan to exit bankruptcy later this year, a judge ruled.

U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, today granted the company’s request to give it the exclusive right to file a plan. That means a group of lenders owed $3.6 billion related to the company’s 2007 leveraged buyout can’t immediately file their own bankruptcy exit plan, Tribune attorney James Conlan said in an interview.

The lenders will only be able to offer their own plan at the end of May if Carey decides that Tribune doesn’t deserve any extra time to persuade creditors to support its proposal.
“No one can file another plan,” Conlan said.

While the judge’s ruling was a victory for Chicago-based Tribune, Carey said he may order an investigation of the buyout over the company’s objections.

Tribune’s 2008 bankruptcy divided creditors, with junior bondholders, represented by their agent Wilmington Trust Co., suing over the buyout. Wilmington Trust and the U.S. Trustee, a federal lawyer who monitors bankruptcies on behalf of the U.S. Justice Department, want Carey to approve an independent examination of the buyout.

‘Preliminary Views’

The U.S. Trustee “has almost exactly spot on expressed the preliminary views I have,” Carey said during today’s court hearing.

Carey put off the hearing on the issue and asked supporters and opponents of the proposal to discuss what would be investigated should he order one.

After his announcement, Tribune and some of the lenders who may be targeted by such an investigation, agreed to meet with representatives of the junior bondholders.

Both sides are scheduled to return to court April 22 to either announce a settlement, or go ahead with a hearing so Carey can make a decision about whether to order a probe.

Tribune’s reorganization proposal, filed yesterday, reflects the settlement the publisher reached with its main creditors last week.

Before the company can exit bankruptcy later this year, Tribune will need to overcome opposition from the hedge funds, who would receive stock under the company’s proposal in exchange for canceling part of their debt, and junior bondholders who get would get nothing.
The company owns newspapers, including the Los Angeles Times and the Chicago Tribune, along with television and radio stations.

Lender attorney Bruce Bennett urged the court today to allow his clients to propose an alternative plan. He said that would give creditors more choice about how to handle the biggest issue in the bankruptcy case, claims that the 2007 buyout caused the company’s bankruptcy by loading it with too much debt.

The hedge funds want to allow Tribune’s newspapers and television stations to leave bankruptcy as soon as possible. Afterward, lawsuits about the 2007 buyout could go forward, under the hedge funds’ proposal.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

--Editors: Glenn Holdcraft, 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