Bloomberg News

Tribune Creditors Make Final Arguments Over Competing Plans

June 27, 2011

June 27 (Bloomberg) -- Tribune Co.’s creditors, divided over whether to settle with or sue JPMorgan Chase & Co., made their final pleas to the judge overseeing the newspaper publisher’s bankruptcy.

After more than five hours of argument, U.S. Bankruptcy Judge Kevin J. Carey ended a hearing today in Wilmington, Delaware, without saying which of two reorganization plans he favored. One plan sues and the other settles with JPMorgan and other senior lenders who funded the $8.2 billion buyout that took Tribune private in 2007.

“This is a case that you ought to settle,” said James Sottile, an attorney for the creditor alliance led by JPMorgan and hedge funds Angelo Gordon & Co. and Oaktree Capital Management LP.

That group is opposed by pre-buyout noteholders, led by hedge fund Aurelius Capital Management LP. They argue that lawsuits related to the buyout would pay them more than the settlement, which is valued at about $488 million.

Under both plans, New York-based JPMorgan and the other senior lenders would be Tribune’s majority owners. The company filed for bankruptcy in 2008, one year after the buyout led by real-estate billionaire Sam Zell.

Tribune’s settlement plan is supported by conclusions of a court-appointed examiner, who found only part of the buyout was vulnerable to challenge by noteholders, Sottile said.

Creditors already have filed lawsuits related to the LBO, including cases against Zell and Tribune’s shareholders.

‘All the Evidence’

“The bottom line is, the examiner looked at all the evidence,” Sottile said.

Tribune, based in Chicago, is now valued at about $6.75 billion, according to court papers filed by the company. It has about $13 billion of debt, mostly from the buyout.

Tribune owns eight newspapers, including the Los Angeles Times and the Chicago Tribune, with a combined daily circulation of 1.9 million last year. The company’s 23 TV stations include sites in New York, Chicago and Los Angeles.

Carey should reject the JPMorgan settlement because there is evidence lenders knew the two-step buyout would fail before arranging the loans used to pay shareholders, noteholder attorney Abid Qureshi said in court today.

The company’s February 2007 projections were so “outlandish” that they weren’t taken seriously by people involved in the buyout, Qureshi said. In a video deposition played in court today, an official with one of the banks involved in the transaction said that the bank made its own projections. That was because the company’s projections were so unreliable, Qureshi said.

Financial Goal

For the publisher to meet its 2007 financial goal Tribune’s top six newspapers needed to increase weekly cash flows by 44.5 percent, Qureshi said. At the time, analysts and media executives believed the industry had begun a long-term decline in revenue that would last 10 years, he said.

During the noteholders’ argument, Carey said he was less interested in their complaint about how the settlement was negotiated than in the deal itself, which would prevent an LBO- related lawsuit against the lenders.

“I am more focused on the question, ‘Is this a good deal?’” Carey said.

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

--Editors: Mary Romano, Stephen Farr

To contact the reporter on this story: Steven Church in Wilmington. Delaware, at schurch3@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus