Two creditors propose Chapter 11 exit plan for Tribune

RBR-TVBR: Oaktree Capital Management and Angelo, Gordon & Company have teamed up and submitted their own proposed reorganization plan to a federal bankruptcy court for Tribune Company to emerge from Chapter 11. What’s most interesting is that the plan is not being rejected out of hand by Tribune management.

The move by Oaktree and Angelo comes as Tribune is beginning a mediation process with its various creditor groups in an attempt to move the stalled reorganization process forward. Oaktree and Angelo are still committed to the mediation effort, but have offered their plan as a way to move forward. They appear to have run their flag up the pole with Tribune management before Fridays’ (9/17) filing with the bankruptcy court, since the flagship Chicago Tribune reported that CEO Randy Michaels and COO Gerry Spector sent employees a note saying they hope the mediation succeeds, if not it "the general approach contained in the Oak Tree Plan may provide the next best alternative."

What Oaktree and Angelo have proposed is that the ownership reorganization of Tribune and litigation over the ill-fated 2007 leveraged buyout (LBO) be separated. Tribune would be able to exit Chapter 11 with its creditors as the new owners, while a Litigation Trust would be established.

The senior lenders would end up owning more than 91% of the New Tribune and a like percentage of a new $1.2 billion senior loan.

The bridge lenders and holders of senior notes would have the highest ranking claims on the remainder, although other creditors, such as Sam Zell’s personal investment company and holders of the so-called PHONES notes would still get to vote on the plan and have recourse to seek some reimbursement via the Liquidation Trust.

The Employee Stock Ownership Plan which owns all stock of the Old Tribune would cease to exist, but a new management incentive plan would be created to award stock in the New Tribune.

Eligible creditors would be able to elect to receive Class A voting stock of the New Tribune, but any entitled to receive a voting stake of 5% or more would have to certify that their ownership complies with FCC rules. There would also be Class B shares with limited voting rights designed not to be attributable under FCC ownership rules and warrants for creditors who prefer that to stock. The new Class A shareholders would be eligible to nominate candidates to serve as members of the new seven-member Board of Directors, which would include the CEO of the company as one member.

The new company would register its stock with the SEC and seek to have it listed for trading as soon as possible with either the NYSE or Nasdaq.

Oaktree and Angelo say their proposal is not intended to limit anyone’s rights, but rather to bring the protracted Chapter 11 process to an end and thus maximize the value of the company for all parties involved. “The Credit Agreement Lender Plan is not a ‘take it or leave it’ document. Rather, the Credit Agreement Proponents invite dialogue with all who might agree with the provisions of the Credit Agreement Lender Plan and all who might disagree,” they stated. “First and foremost,” they noted, they are 100% committed to the mediation process and are offering their plan only as an alternative if mediation fails.

RBR-TVBR observation: This is a rather clever package, actually. It would get Tribune Company out of its long Chapter 11 state of limbo without depriving any parties of the right to pursue their legal claims. No doubt some lower ranking creditors will take issue with the allocation of more than 91% of the asset value to the senior lenders, but that’s really an argument over a detail, since the senior lenders will clearly end up as the majority owners. If mediation fails, this would allow them to move forward to operating the company under a new Board of Directors with the Litigation Trustee deals with the legal battles which are sure to last for many more years.

Broadcast Union News Observation: As usual, nobody is looking out for the non-executive employees, no provisions are mentioned to make the employee "owners" whole for their losses in the ESOP.