Attorneys for Tribune Co. and a rival group of creditors argued the merits of their competing reorganization plans for the media conglomerate Monday before a Delaware bankruptcy judge who must decide whether either one passes muster.
Judge Kevin Carey heard opening arguments in a scheduled two-week hearing that could determine the fate of Tribune, which sought bankruptcy protection less than a year after an $8.2 billion leveraged buyout that left it with unsustainable debt.
Tribune, which owns the Chicago Tribune, Los Angeles Times, other newspapers and several radio and TV stations, filed for bankruptcy protection in December 2008. The company faced a decline in advertising revenue and a debt burden of more than $12 billion from the buyout engineered by billionaire developer Sam Zell.
Tribune's proposed reorganization plan would shield bank lenders and others involved in the buyout from future legal claims, even though a court-appointed independent examiner concluded that certain aspects of the deal likely constituted fraud. The examiner said the lenders should have known the company wouldn't be able to repay the loans.
Tribune attorney James Conlan told Carey that the company's plan is a fair and practical way to allow Tribune to exit bankruptcy. It would leave Tribune in the hands of an ownership group led by JPMorgan Chase & Co., distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management.
An alternative plan proposed by senior noteholders led by Aurelius Capital Management would preserve legal claims against JP Morgan and other buyout lenders. It would set up a trust to fund the litigation, which could result in more than $1 billion in additional recoveries for other Tribune creditors, Aurelius says.
Zell, Tribune Co.'s chairman, has objected to both plans because he and a business arm, Equity Group Investments, would remain exposed to lawsuits alleging fraud.
David Zensky, an attorney for Aurelius, told Carey that the proposed settlement, like the buyout itself, is a mistake.
"There was widespread recognition by the lenders that the transaction would leave the company insolvent," Zensky said. He added that the buyout of Tribune shareholders with billions in loans that never should have been made amounted to a fraudulent transfer.
James Sottile, an attorney for Tribune's official committee of unsecured creditors, argued that Tribune's plan, which is supported by the committee and senior lenders, settles the claims of all creditors while allowing for further recoveries from lawsuits against third parties, including certain Tribune officers and directors.