Tribune Reorganization Plan Under Immediate Attack

The question isn’t who objects to the plan Tribune has hatched to emerge from Chapter 11 protection – the question is who doesn’t.

Tribune Co.’s Chapter 11 disclosure statement faced new objections last week, which may jeopardise the publisher’s chances of obtaining court approval of the document at a hearing on 20 May 2010. Senior creditors, junior creditors and the Labor Department have all filed objections with the court.

A common thread among objections is said to be insufficient provision of information on how the plan was put together and on charges that the transaction was fraudulent in the first place.

According to the US Department of Labor's court filing, Tribune’s reorganisation plan wrongly tries to shut down a lawsuit against Sam Zell, who led an $8.2bn leveraged takeover of the company in 2007, and block potential claims by the government, reports Reuters.

The Labor Department is also currently investigating Tribune for federal violations for the way Mr Zell used the company’s employee stock of ownership plan to finance the leveraged buyout.

According to the Chicago Tribune, the Department of Labor wants more information about creditor risk associated with the possibility that the merger violated the Employee Retirement Income Security Act of 1974. If the Labor Department finds the leveraged buyout’s reliance on the ESOP was a banned transaction, the government may press claims against those who had a role in that deal, including Sam Zell.

Some senior creditors are saying that junior creditors have an overly generous compensation package. Meanwhile, junior creditors want more information on the possibility of a “fraudulent conveyance” finding, meaning that the emerging company was created with so much debt that it was overburdened from the outset.

Tribune still expects the plan to be approved. In a statement, the company wrote, “The plan of reorganization we have filed with the bankruptcy court is fair to our creditors and in the best interests of all parties involved with our Chapter 11 process," the company said. "We remain confident in our ability to get the plan approved by our creditors and confirmed by the bankruptcy court.”