An investment banker hired by Tribune Co. to help end its 27-month stint in bankruptcy protection defended the integrity of his work Tuesday as testimony began over dueling reorganization plans.
David Kurtz, a managing director for Lazard Ltd., was the first witness in a two-week hearing that could decide the fate of the media conglomerate. U.S. Bankruptcy Judge Kevin Carey must decide whether to approve Tribune Co.'s proposed reorganization plan, a competing plan submitted by dissident bondholders, or neither.
Tribune Co. owns the Chicago Tribune, the Los Angeles Times, several other major newspapers and more than 20 television and radio stations. It filed for bankruptcy protection in December 2008, less than a year after a buyout engineered by real estate developer Sam Zell saddled the company with more than $12 billion in debt.
Kurtz testified Tuesday that he wasn't influenced by the close relationship between Zell and Donald Liebentritt, the Tribune Co. chief restructuring officer to whom Kurtz reported.
Liebentritt has worked for Zell for almost 30 years, serving as general counsel for Tribune Co. and as senior adviser and former president for Zell's investment firm, Equity Group Investments LLC. He also serves on the board of a company handling Zell family trusts.
Kurtz said Liebentritt assured him that he would work in the best interest of the Tribune Co. "even if it were to conflict with the interest of Mr. Zell."
Tribune Co.'s attempts to exit bankruptcy protection bogged down last summer after a court-appointed examiner released a report that concluded parts of the buyout probably constituted fraud.
Kurtz described the plan supported by Tribune Co. as a reasonable way to navigate the labyrinth of legal claims stemming from the buyout.
Tribune Co.'s plan would release claims against the buyout lenders but would allow lawsuits against other people involved in the buyout, including Zell and other Tribune Co. officers and directors.
If approved, the proposal would leave the company in the hands of an ownership group led by JPMorgan Chase & Co., distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management in exchange for forgiving most of the company's debt.
But a group of senior noteholders led by Aurelius Capital Management argues that JPMorgan and other lenders that financed Tribune Co.'s disastrous buyout are escaping legal liability too easily. Their plan would provide smaller guarantees to creditors in hopes of eventually recovering more money through lawsuits.
On Tuesday, Aurelius attorney David Zensky questioned how Liebentritt could be objective in negotiating a settlement to legal claims stemming from the buyout engineered by Zell, given their close ties.
Zensky noted that Liebentritt referred to Aurelius as a "terrorist" in a September e-mail to Kurtz and members of a special committee set up by Tribune Co.'s board to oversee the bankruptcy case. Aurelius at the time was pushing for a better recovery for noteholders in light of the examiner's findings on the ill-fated buyout.
"Mr. Liebentritt wasn't the only source of information and evaluation about the parties who were participating in the process," Kurtz replied.
Aurelius may call Liebentritt to the stand later as a hostile witness.