The federal judge overseeing Tribune Co.'s bankruptcy case should reject both proposals to reorganize the media company's finances because neither adequately protects Tribune Chairman Sam Zell from lawsuits, Zell's attorney argued Wednesday.
Attorney David Bradford said such lawsuits threaten not only to injure Zell's reputation, but also to waste the company's assets. Bradford also said the reorganization proposals unfairly restrict Zell's ability to have Tribune pay for his legal expenses if the lawsuits are allowed.
Zell engineered a buyout in 2007 that took Tribune Co. private and left it saddled with more than $12 billion in debt, forcing the company to file for bankruptcy protection a year later as it faced a decline in advertising revenue. Tribune owns the Chicago Tribune, Los Angeles Times, other newspapers and several radio and TV stations.
Bradford noted that although a court-appointed independent examiner had concluded that certain aspects of the 2007 buyout likely constituted fraud, the examiner predicted that lawsuits against Zell were unlikely to succeed.
But U.S. Bankruptcy Judge Kevin Carey said at a hearing on the reorganization plans that claims against Zell could have merit. He has yet to make a final decision on whether an official committee of Tribune creditors can pursue certain allegations against Zell.
The committee of unsecured creditors filed a lawsuit last year seeking to recover billions of dollars from banks and company insiders, including Zell, who were involved in the buyout. The lawsuit has been put on hold until Carey decides whether to confirm either reorganization plan. He is scheduled to hear final arguments in the confirmation hearing in June.
Tribune's proposed reorganization would leave the company owned by a group led by JPMorgan Chase & Co., distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management. It would allow lawsuits related to the buyout against some parties, including certain Tribune officers and directors. But the plan would shield the bank lenders, even though the independent examiner said the lenders should have known the company wouldn't be able to repay the loans.
The 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 larger trust to fund the litigation, which Aurelius says could result in more than $1 billion in additional recoveries for other Tribune creditors.
Both reorganization plans would allow lawsuits against Zell.