Billionaire Sam Zell is demanding a share of any money retirees and other creditors may win in lawsuits or legal settlements over the 2007 leveraged buyout he engineered of newspaper publisher Tribune Co.
The demand, made through the Zell-controlled company EGI TRB LLC, came in one of the disputes being heard in bankruptcy court over how to split any money creditors win in dozens of lawsuits over claims the buyout was a fraud on creditors. U.S. Bankruptcy Judge Kevin Carey began a two-day hearing today about the disputes.
“In the ultimate display of chutzpah, Zell and EGI are asserting that their tainted claims should now be treated on par with innocent creditors who had nothing to do with the LBO,” a group of about 185 retired managers and other highly paid former employees said in court papers.
Carey must decide which creditors, including Zell and the retirees, can share in a settlement in which senior lenders agreed to give lower-ranking, unsecured creditors more than $400 million. Retirees and other creditors claim that Zell cannot collect anything on the $225 million that Tribune owes EGI-TRB until after other creditors are fully paid.
Carey is considering those so-called allocation disputes before deciding on Tribune’s reorganization plan. Carey scheduled a hearing on the $7 billion reorganization plan in May.
$8.3 Billion Buyout
Tribune, owner of the Los Angeles Times, the Chicago Tribune, television stations and cable channels, filed for bankruptcy one year after Zell used borrowed money to buy out shareholders for $8.3 billion.
Zell can share in any proceeds of legal settlements and lawsuits because that money wouldn’t belong to Tribune, and therefore wouldn’t be subject to a subordination clause associated with the EGI-TRB debt, Zell attorney David Bradford said in court.
Under Tribune’s reorganization plan, creditors owed about $13 billion would receive stock and cash worth about $7 billion.
The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).