Tribune to Rewrite Reorganization; Lender Deal Fails
Tribune Co. (TRBAA) said it must rewrite its plan to exit bankruptcy after a deal to divide ownership of the publisher among senior lenders fell apart and managers were excluded from new talks about the company’s future.
Company attorney James Conlan said Tribune will again delay the start of a court battle that would determine which group of dueling creditors gain control of the newspaper company. The agreement among senior lenders was terminated after a court-appointed examiner concluded last month the company’s 2007 buyout, which they helped finance, is vulnerable to court challenge by lower-ranking creditors.
Tribune will file a new plan by Aug. 27 designed to attract as much creditor support as possible, Conlan told U.S. Bankruptcy Judge Kevin J. Carey in Wilmington, Delaware, at a hearing today. At Conlan’s request, Carey moved the hearing to approve the reorganization plan from early October to Nov. 8.
“There are all kinds of shifting alliances here,” lender attorney Thomas Lauria said in an interview. Lauria’s client is Wells Fargo Bank NA, an agent for a secondary group of lenders owed more than $1 billion.
Lower-ranking creditors say the examiner report supports their contention that the senior lenders should lose their status as first-to-be-paid creditors. Those lenders have been divided over whether to fight, or compromise to avoid a lawsuit.
A group of lenders, including JPMorgan Chase & Co. (JPM), had agreed to support the current reorganization proposal, which includes a compromise with some lower-ranking creditors. That plan would have given the lenders more than 90 percent of Tribune once the newspaper and television company exited bankruptcy.
That deal was terminated, Conlan said. Talks among different creditor groups were held without Tribune’s participation, Conlan said.
Should the company not get enough support among creditors for its new reorganization proposal, Tribune may file lawsuits related to the buyout, Conlan told Carey. After the hearing, Conlan declined to elaborate on his comments.
In July, bankruptcy examiner Kenneth N. Klee released a report in which he found part of the company’s 2007 buyout may be a fraudulent transfer. Klee found evidence of a fraudulent transfer involving the second part of the two-part deal that real-estate billionaire Sam Zell used to take over the company.
Klee concluded that lower-ranking creditors are “somewhat likely” to win a lawsuit based on the smaller piece of the $8.3 billion transaction.
In bankruptcy, a fraudulent transfer means a company took on debt that it knew it couldn’t repay, or got nothing of value in return for the borrowing.
The company’s 5.25 percent bonds due in 2015 rose 7.6 percent to 42.5 cents on the dollar. That debt is junior to the more than $8 billion in bank loans held by the senior lenders.
The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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