A group of Tribune Co. creditors filed a lawsuit Friday alleging the media company's nearly two-year stint in bankruptcy protection might have been averted if not for the greed of big banks who saddled the business with more debt than it could afford to repay.
The complaint filed in New York state court seeks to hold the banks behind a $8.2 billion buyout of the Tribune Co. responsible for the financial wreckage left behind by the complicated deal completed in 2007.
The lawsuit's targets are JPMorgan Chase & Co.'s bank, Bank of America Corp.'s Merrill Lynch Capital Corp., Citigroup Inc.'s Citicorp and Bank of America. Attempts to reach the banks late Friday were unsuccessful.
The lenders provided two phases of financing that that enabled real estate mogul Sam Zell to gain control of a company that owns major newspapers, including the Chicago Tribune and Los Angeles Times, and more than 20 radio and TV stations.
A large contingent of investment funds that acquired Tribune debt after the buyout's first financing phase are suing the banks.
The allegations revolve around the second phase of financing, totaling $3.7 billion, that completed the buyout in December 2007. That phase "was tainted with fraud and other misconduct," the suit alleged.
As the second financing phase unfolded during a six-month period, the main lenders were already well aware that the Tribune's fortunes were flagging. The banks pushed the deal through anyway to collect more than $120 million in fees, the suit said.
Many of the allegations echo the findings of an independent examiner appointed by the federal judge overseeing the Tribune Co.'s bankruptcy case in Delaware. The examiner's report, filed in July, concluded some aspects of the Tribune Co. buyout bordered on fraud.
That assertion contributed to the unraveling to the Tribune Co.'s original plan to emerge from bankruptcy protection. The company last week filed a revised plan that was backed by JPMorgan and several other major creditors.
But disgruntled parties involved in the bankruptcy case are expected to file an alternative plan that could complicate the Tribune Co.'s attempt to emerge from bankruptcy protection by the end of the year.