Two creditors of Tribune Co., the biggest newspaper publisher in bankruptcy, want $222 million in unpaid notes included in lawsuits claiming shareholders wrongly gained from the company’s 2007 leveraged buyout.
Citadel Equity Fund Ltd., a Cayman Islands firm, and Los Angeles-based Camden Asset Management asked the judge overseeing Tribune’s bankruptcy to clarify how the notes they hold should be treated.
The two investors claimed in court papers filed yesterday the right to collect money in two different court proceedings related to billions of dollars that Tribune’s creditors contend they lost because of the leveraged buyout.
The $222 million face value of the notes should be used in a group of lawsuits claiming the LBO was a fraud on creditors, according to the filing. The investors also say that the notes give them a separate right to collect as much as $26 million in bankruptcy court under Tribune’s reorganization plan.
The creditors “continue to have the right to be plaintiffs for the full amount,” Citadel and Camden said in a motion filed in U.S. Bankruptcy Court in Wilmington, Delaware.
The motion is related to a ruling earlier this month about how $1.24 billion in so-called phone notes would be treated under Tribune’s proposed reorganization plan. The phones have a lower priority than other Tribune debt, U.S. Bankruptcy Judge Kevin J. Carey ruled. Some of the phones were converted just before Tribune filed for bankruptcy in December 2008, reducing the face value of the notes to $759.3 million, Carey said.
Citadel and Camden exchanged their notes just before the bankruptcy filing, cutting the amount they were able to collect on each phone to $18.26 from $155.49. The two investors now argue that they should be allowed to file a claim in the LBO lawsuits for the higher amount and also collect the lower amount in bankruptcy court.
Tribune, the Chicago-based owner of the Los Angeles Times and the Chicago Tribune newspapers, filed for bankruptcy one year after a leveraged buyout led by real-estate billionaire Sam Zell. Since then, the company and hedge funds holding Tribune’s senior debt have sought approval for a plan to divide ownership among the lenders that financed the $8.3 billion buyout. Pre-buyout creditors oppose that plan, claiming Zell’s deal was doomed from the start.
Tribune, valued earlier this year by the company at more than $7 billion, owes creditors about $13 billion.
Gary Weitman, a Tribune spokesman, declined to comment on the filing.
The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).