Tribune Co. is planning to revise its proposed reorganization plan after a Delaware judge rejected its current proposal to exit bankruptcy.
U.S. Bankruptcy Judge Kevin Carey on Monday rejected both Tribune's plan and a competing reorganization proposal submitted by a group of dissident creditors.
But Tribune officials on Tuesday noted that Carey made several rulings in his 126-page opinion that support Tribune's plan. They are confident they can revise the plan and ultimately win court approval.
"While there was no winner, at least officially, there is a silver lining in what the judge had to say about our plan and the process going forward," chief restructuring officer Donald Liebentritt said in an email to Tribune employees. "... All said, we see yesterday as a delay, not a defeat."
Liebentritt said Tribune hopes to submit a revised plan to the court before a status hearing the judge will hold on Nov. 22.
"If we're successful, as I hope we are, we will be pushing an amended plan through what should be an accelerated confirmation process that could be concluded early next year," Liebentritt wrote.
Tribune CEO Eddy Hartenstein expressed similar confidence in an email urging Tribune employees to continue working hard.
A spokesman for Aurelius Capital Management, a hedge fund and Tribune creditor that has spearheaded opposition to Tribune's plan, declined to comment Tuesday.
The judge indicated in his ruling that if the two sides addressed only the flaws he pointed out in their respective plans and presented no other changes, Tribune's plan likely would survive court scrutiny.
But to win court approval of a revised plan, Tribune likely will have to drop a provision that offers protection from lawsuits to Tribune employees who cashed out stock in a 2007 leveraged buyout that left the company mired in debt.
"The judge found our effort laudatory, but not legally supportable," Liebentritt acknowledged in his email to Tribune employees. "We haven't given this up yet, but the bar to overcome is quite high."
Tribune owns the Chicago Tribune, the Los Angeles Times, other major newspapers and more than 20 television and radio stations, including WGN in Chicago. The company sought bankruptcy protection in 2008, less than a year after a leveraged buyout led by billionaire developer Sam Zell left Tribune saddled with almost $13 billion in debt.
A court-appointed examiner concluded last year that the final steps of the buyout probably constituted fraud.
Tribune's plan includes a settlement shielding the buyout lenders from lawsuits while allowing litigation against others, including Zell and other Tribune officers and directors. The plan, like the proposal by Aurelius, would give control of Tribune Co. to an ownership group led by JPMorgan Chase, distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management.
But creditors led by Aurelius have 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 Aurelius plan would give creditors less money upfront while preserving their ability to recover more through lawsuits.
While rejecting both plans, Carey said Tribune's proposed settlement with the buyout lenders was fair and reasonable. He also said Tribune's plan provides more certainty and a better foundation for revitalizing the company's operations, and that it was the choice of the vast majority of Tribune creditors.
The Aurelius plan, meanwhile, hinges on extensive and costly litigation with no assurance that creditors would benefit from the lawsuits, the judge said.