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Tribune Adviser Denies Bankruptcy Accord Tainted by Zell

A Tribune Co. bankruptcy adviser denied that a plan to settle claims related to the newspaper publisher’s 2007 buyout was tainted by the influence of an ally of Chairman Sam Zell.

The adviser, David S. Kurtz, a managing director of Lazard Freres & Co., testified today that he questioned Donald J. Liebentritt, Tribune’s chief restructuring officer, about his long relationship with Zell.

“Don told me, notwithstanding his relationship with Zell, that now he was general counsel of Tribune,” Kurtz, who was hired after Tribune filed to reorganize in 2008, said in U.S. Bankruptcy Court in Wilmington, Delaware. “He said his duty was to maximize value for all creditors of the estate.”

Tribune is seeking court approval of its plan to exit bankruptcy by settling some of the billions of dollars in current and proposed lawsuits related to the leveraged buyout. Aurelius Capital Management LP, a hedge fund sponsoring a competing proposal, claims the Tribune plan was written by parties with conflicts of interest.

Aurelius has asked U.S. Bankruptcy Judge Kevin J. Carey to reject Tribune’s plan because it was proposed in bad faith, a charge denied by the Chicago-based company. The two sides are scheduled to be in court for two weeks of testimony and arguments over the two competing plans.

Value Drop

Tribune’s newspapers and television stations have plunged in value since the 2007 leveraged buyout and are now worth a little more than half the $13 billion the company owes, according to court documents.

Disputes over the LBO led by real-estate billionaire Zell have pitted holders of about $2.5 billion in debt from before the buyout against lenders owed more than $10 billion for funding the deal. JPMorgan Chase & Co. and other lenders are seeking immunity from a proposed lawsuit by the rival creditors that a court-appointed examiner found they may lose.

Tribune’s plan is sponsored by JPMorgan, the official committee of unsecured creditors and two hedge funds, Angelo Gordon & Co. and Oaktree Capital Management LP.

Aurelius claims that Tribune’s lead bankruptcy law firm, Sidley Austin LLP; some company officers including Liebentritt; and attorneys for the creditors’ committee at Chadbourne & Parke LLP all have an interest in settling the buyout claims for less than they are worth.

Sidley Austin may be sued over its legal work on the buyout, Liebentritt invested in Tribune’s buyout debt and would benefit from the settlement, and Chadbourne & Parke gets about 7 percent of its revenue from work done on behalf of some buyout lenders, including JPMorgan, according to court documents filed by Aurelius and comments made in court by one of its lawyers, David Zensky.

Sidley Austin, Liebentritt and Chadbourne & Parke have denied wrongdoing in court papers.

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

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