LBO issues to be part of Tribune Ch. 11 hearing

By Associated Press
Posted July 14, 2010 at 5:11 p.m.

The judge in the Tribune Co.’s bankruptcy said Wednesday that there’s no way to avoid arguments about the media conglomerate’s 2007 leveraged buyout at a hearing on whether to confirm its reorganization plan.

But Judge Kevin Carey indicated that he will not hold a full-blown trial on buyout-related claims at the confirmation hearing, set to begin Aug. 30.Unsecured lenders who provided $1.6 billion in bridge financing for the buyout and who oppose the reorganization plan filed a motion last month asking the judge to decide Tribune’s objections to their LBO-related claims as part of the confirmation process. They argued that having a separate hearing on those claims after confirmation would be a waste of time and money.

But attorneys for Tribune and its supporters argued that the bridge lenders were simply trying to derail the plan confirmation process with a drawn-out hearing on LBO-related claims that other parties sought to avoid by entering into a proposed “global settlement” that is the foundation for Tribune’s reorganization plan.

“That blows the plan up,” said Tribune attorney James Conlan. “I think that is the goal of the bridge agent here.”

In response to the bridge lenders, Tribune filed a motion seeking to limit the hearing on whether to confirm its plan to just five days.

The judge declined to rule on the dueling motions but said he would revisit them at an Aug. 9 hearing. At the same time, Carey indicated that potential claims arising from the leveraged buyout engineered by real estate mogul Sam Zell, which took Tribune private but saddled it with debt, cannot be avoided at the confirmation hearing.

“It’s important enough that regardless of what the parties want to do, the court needs to hear whether the claims are good or bad,” Carey said. “That doesn’t mean they need to be tried in full.”

Junior bondholders have alleged in a lawsuit that JPMorgan, Bank of America and other banks that financed the buyout engaged in fraudulent conduct because they knew the debt would leave Tribune insolvent. Tribune’s committee of unsecured creditors also sought to pursue claims against the banks but dropped its challenge as part of the settlement that cleared the way for Tribune to file its reorganization plan.

An attorney for JPMorgan complained Wednesday that the company thought it was “buying something” when it agreed to enter in the settlement to avoid litigation related to the buyout.

“Maybe you didn’t buy enough,” the judge responded. “In a multiconstituent bankruptcy, sometimes you can’t buy everything you’d like to have.”

Under Tribune’s plan, JPMorgan and distressed-debt specialist Angelo, Gordon & Co. would be among the new owners of the company’s media properties, which include Los Angeles Times, the Chicago Tribune, other daily newspapers and broadcast stations.

Centerbridge Partners, which leads a group that owns outstanding senior bond debt, would get a 7.4 percent stake in Tribune. In return, Centerbridge would release any claims it might have related to the 2007 buyout.

The judge noted Wednesday that issues surrounding the buyout could become clearer after an independent examiner he appointed to look into the deal submits his report, which is due by July 26.

Mark Minuti, an attorney for the examiner, said portions of the examiner’s report may have to be kept under seal until the judge rules on claims from several parties that information they provided to the examiner is confidential. Minuti echoed Carey’s belief, which the judge reiterated Wednesday, that the public should have access to the report.

“The examiner believes very strongly that all of the information he references in his report should be public,” Minuti said.

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