Tribune Creditors Zero In On Zell

By JOSH KOSMAN
The New York Post

Tribune Chairman Sam Zell's bid for immunity from legal claims arising from the disastrous buyout of the company could be slipping away.

The judge overseeing the Tribune bankruptcy case yesterday appointed a mediator to try to hammer out a settlement after dueling creditor groups failed to agree on a deal.

One of the main sticking points has been whether certain creditors could sue Zell and the banks that financed the leveraged buyout and landed the company in bankruptcy.

"A plan [between the creditor groups] was not emerging that had a decent chance of passing," a source involved in the process said. "It's hard for me to now imagine a scenario where they keep immunity."

US Bankruptcy Judge Kevin Carey is asking Tribune and the banks, including JPMorgan, to deal with junior creditors who believe they should recover some of the $1 billion they are owed.

Zell led an $11.7 billion buyout of the business in 2007, in which he committed only $315 million. Tribune borrowed the rest from Citigroup, JPMorgan and other lenders, saddling the business with a mountain of debt. The company filed for bankruptcy less than a year later.

A court appointed examiner recently found part of the buyout "likely" could have been a fraudulent transfer of assets because the huge debt load put Tribune at such great risk.

Media conglomerate Tribune, which owns the Chicago Tribune and Los Angeles Times, locally operates WPIX television and the Hartford Courant newspaper.

All the creditor groups will send new restructuring proposals to the judge, who will turn them over to a mediator within the next month, a source said.

According to an article in the LA Times by Michael Oneal, the move comes after a company-sponsored reorganization plan unraveled several weeks ago in the wake of an independent examiner's report that criticized elements of Tribune Co.'s disastrous 2007 leveraged buyout.

Efforts to find a new compromise have collapsed amid escalating bickering over legal claims tied to the buyout led by Tribune Co. Chairman Sam Zell.

At Tribune's request, U.S. Bankruptcy Judge Kevin J. Carey in Delaware called for a nonbinding mediation process led by his colleague U.S. Bankruptcy Judge Kevin Gross, which was to begin immediately.

Delaware Bankruptcy Judge Kevin Gross was charged with finding a way to resolve legal claims stemming from the disastrous 2007 leveraged buyout that put real estate developer Sam Zell in charge of the Chicago Tribune, Los Angeles Times and numerous broadcasters.

Less than a year after what Zell has called the "deal from hell," Tribune filed for bankruptcy. The company's plan to get itself out of bankruptcy recently collapsed following an examiner's report.

"We’re pleased that the court has appointed a mediator—this is a clear sign that reaching consensus is a valuable part of this process," Tribune CEO Randy Michaels said in a statement. "We welcome Judge Gross’ participation in the process and we look forward to his wisdom and guidance as we move forward."

As previously reported, Tribune's board of directors has named a special committee to oversee the company’s Chapter 11 process. The committee is composed of four independent directors who joined the board on or after the controversial 2007 leveraged buyout of Tribune engineered by its current chairman, Sam Zell.

There is no set timetable for the process, but each of the parties in the case will have until mid-September to provide Judge Gross with a five-page plan it thinks provides a fair settlement of the legal issues surrounding the 2007 buyout.

Judge Gross, who mediated a deal in the seemingly deadlocked bankruptcy of Semgroup, an energy marketing firm, was given direction to set the time and deadlines for talks.

Judge Carey said the parties to the bankruptcy were not to file motions relating to the leveraged buyout during the mediation, although he said parties were free to file their own reorganization plans.

The bankruptcy became bogged down last month after an independent examiner determined that parts of the Zell deal could be found to be an "intentional fraudulent transfer," potentially disqualifying billions of dollars of senior debt.

That paved the way for junior creditors to demand a bigger slice of the Tribune pie.

Judge Carey's order set places at a crowded negotiating table for Tribune; the unsecured creditors committee; JPMorgan Chase (as agent for the senior lenders to the buyout); hedge fund Angelo, Gordon & Co.; a group of senior lenders led by hedge fund Oaktree Capital Management; a new group of senior lenders represented by New York law firm Olshan Grundman Frome Rosenzweig & Wolosky; owners of the bridge loan debt represented by Wells Fargo Bank; junior creditors led by Law Debenture Trust Co., Centerbridge Credit Advisors and Deutsche Bank Trust Co.; a legal entity controlled by Zell; and a group of junior debt holders led by Wilmington Trust Co.

As a nonbinding mediation, participation is voluntary. Judge Gross will have the power to set the rules and the agenda. He also will be allowed to consult with Kenneth Klee, the Los Angeles lawyer who was the independent examiner in the case.

Mr. Klee's report, issued in late July, is what torpedoed Tribune's reorganization plan. The report partially supported junior creditor claims at the center of the case that Zell's 2007 buyout left Tribune insolvent. Any settlement brokered by Gross will hinge on an agreement to resolve those claims.

The case is In Re Tribune Co, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.