A federal judge on Monday rejected Tribune Co.'s plan to emerge from bankruptcy protection, along with a rival plan from dissident creditors.
Judge Kevin Carey said in a 126-page ruling that he may appoint a trustee to help end the 3-year-old case if the media conglomerate cannot come up with an acceptable plan soon.
Tribune declined comment Monday, saying it was still reviewing the decision.
Carey scheduled a Nov. 22 meeting to determine how to proceed.
Tribune owns the Chicago Tribune, the Los Angeles Times, other major newspapers and more than 20 television and radio stations, including WGN in Chicago. It sought bankruptcy protection in 2008, less than a year after a leveraged buyout led by billionaire Sam Zell left the company loaded with debt. A court-appointed examiner concluded last year that the final steps of the buyout probably constituted fraud.
Tribune Co.'s reorganization plan included a settlement shielding the buyout lenders from lawsuits while allowing litigation against others, including Zell and other Tribune Co. officers and directors. The plan would have given ownership of Tribune Co. to a group led by JPMorgan Chase, distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management. In exchange, lenders would have forgiven most of the company's debt, which totaled about $13 billion when Tribune sought bankruptcy protection.
Tribune's plan, which valued the company at about $6.75 billion, called for creditors not involved in the buyout to receive about $488 million, or roughly 33 cents on the dollar.
A group of creditors led by hedge fund Aurelius Capital Management argued that JPMorgan and other lenders that financed the buyout were well aware of Tribune Co.'s shaky financial situation in 2007 and were escaping legal liability too easily under Tribune's plan.
The group submitted a competing plan that would have given creditors less money upfront, while preserving their ability to recover more through lawsuits.
But Carey said he couldn't accept the Aurelius plan, either.
Stephen Sigmund, a spokesman for Aurelius, had no immediate comment on Carey's ruling.
In rejecting both plans, the judge said neither met requirements under bankruptcy law for acceptance by creditors that would be left with less than what they are owed.
Carey said Tribune Co.'s proposed settlement shielding the buyout lenders was fair and reasonable, but he said certain other provisions in the plan were too broad. He also said there were problems of fairness regarding the treatment of certain junior bondholders.
The judge said the Aurelius plan also had flaws, including unfairly discriminating against Tribune's senior lenders.