Competing reorganization plans for Tribune Co. were rejected by a judge who threatened to put the biggest U.S. media company in bankruptcy under a trustee unless it improved its strategy for ending the case.
U.S. Bankruptcy Judge Kevin J. Carey in Wilmington, Delaware, compared two groups of competing creditors to warring animals in a parable about a fox and scorpion who must cooperate to cross a river safely.
They fail and both die reflecting “an inescapable facet of human character: the willingness to visit harm upon others, even at one’s own peril,” Carey said in the opening section of his 125-page legal decision yesterday.
Carey appeared to give an advantage to one plan backed by JPMorgan Chase & Co. (JPM) when he approved the heart of that group’s reorganization plan, which is a settlement of the main potential lawsuit arising from the company’s 2007 buyout. The two plans differed mainly in whether they settled, or pursued a lawsuit against lenders, including JPMorgan, that funded the $8.2 billion buyout.
Carey listed technical legal issues in rejecting both plans, including how each side released some of the potential claims. The JPMorgan release provisions were too broad, Carey found.
The competing plan backed by hedge fund Aurelius Capital Management LP “unfairly discriminates” in its treatment of senior lenders and its release of non-debtor guarantors is improper, Carey said.
Should both plans change enough to meet his concerns, Carey said he would pick the JPMorgan plan because the settlement of the main 2007 buyout lawsuit “treats creditors fairly.”
Unless the company is able to “promptly find an exit door” to bankruptcy, Carey said he will appoint a trustee to oversee Tribune.
“Despite any disruption to management, as well as the added cost and delay this might inevitably occasion, the court intends to consider, on its own motion, whether a Chapter 11 trustee should be appointed,” Carey wrote.
Gary Weitman, a Tribune spokesman, said in an e-mail, “We are reviewing the judge’s decision and will have no comment until we have finished studying it.”
Carey has presided over the case since it was filed in December 2008. Tribune, which is worth about $6.75 billion, owes creditors about $13 billion, according to court records.
The two plans were backed by opposing groups of creditors. JPMorgan and the lenders who funded the $8.2 billion buyout supported a plan that would absolve them of most legal responsibility for the transaction.
Pre-buyout creditors, who rank below lenders in the repayment priority, backed a plan that would use lawsuits to raise money for them. Those suits would seek to change the repayment priority by moving pre-buyout creditors ahead of the lenders.
Under both plans, New York-based JPMorgan and the other senior lenders would be Tribune’s majority owners. Those lenders include hedge funds Oaktree Capital Management LP and Angelo Gordon & Co.
The Chicago-based company filed for bankruptcy one year after the buyout led by real-estate billionaire Sam Zell.
While in bankruptcy, Tribune sold its stake in the Chicago Cubs baseball team. Tribune owns eight newspapers, including the Los Angeles Times and Chicago Tribune, with a combined daily circulation of 1.9 million last year. The company’s television stations in New York, Chicago and Los Angeles are among a total of 23.
A court-appointed bankruptcy examiner, Los Angeles attorney Kenneth Klee, investigated the buyout, concluding that the second-half of the two-step deal was vulnerable to court challenge.
The finding helped prompt a settlement among Tribune, an official committee of unsecured creditors and JPMorgan, which Carey said he approved. In exchange for getting immunity from some lawsuits, buyout lenders offered to pay pre-buyout creditors more than $400 million.
The lower-ranking creditors already have filed lawsuits related to the buyout, including cases against Zell and Tribune’s shareholders.
The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).