Judge gives creditors right to sue Zell, others

By Dow Jones Newswires
Posted Oct. 22, 2010 at 4:35 p.m.

A bankruptcy judge on Friday granted Tribune Co.’s  official committee of unsecured creditors authority to make the opening moves in long-threatened litigation over the 2007 leveraged buyout blamed for the media company’s tumble into Chapter 11.

Judge Kevin Carey said he would sign off on an order acknowledging the official committee is the proper body to bring claims against lenders, executives and other leaders of the embattled media company, as well as advisers who reaped millions in fees from the LBO.

Creditors will file the suits but won’t pursue them until the fate of Tribune Co.’s reorganization effort has become clear, said Graeme Bush, attorney for the official committee. He’s with Zuckerman Spaeder LLP.

“We are going to do our level best to file them by the end of next week,” Bush said at a hearing in the U.S. Bankruptcy Court in Wilmington, Del. Prosecution of the suits will await the outcome of Tribune Co.’s bid to get out of bankruptcy with settlements that will quiet some of the claims, he said.

Claims the LBO rendered Tribune insolvent while enriching executives, investment banks, advisers and shareholders have played a central role in Tribune Co.s Chapter 11 proceeding.

Top company executives, including Tribune Co. Chairman Sam Zell and past leaders are likely to be tagged with blame for the flawed deal, so creditors said it would be inappropriate to leave the power to sue in the company’s hands.

Tribune Co. and the banks that financed the deal said damage claims were unwarranted and blamed a decline in advertising revenue for the company’s woes.

Until a court-ordered probe concluded it was probably fraud that tainted $3.6 billion worth of debt picked up in the deal, Tribune Co. was set to erase the claims in a Chapter 11 plan that swapped out LBO debt for ownership of the company.

Junior creditors were offered $425 million worth of equity in a reorganized publishing and TV broadcasting enterprise under the original plan.

The findings of examiner Kenneth Klee pushed Tribune Co.’s original reorganization plan off the table and set off a clamor among junior creditors who say the damage from the deal, led by real-estate mogul Samuel Zell, should translate into a recovery for them.

Tribune Co. is scheduled to file a new Chapter 11 plan Friday, one that will shield some connected to the LBO from liability for the deal, which saddled the company with more than $8 billion in new debt. Others will be left vulnerable to suit.

Aurelius Capital Management and other pre-LBO creditors have vowed to fight the settlement that they expect will be embodied in Tribune Co’.s new Chapter 11 plan, at a confirmation contest.

Foes of Tribune’s Co.’s plan have another week to file Chapter 11 plans of their own, which they can pit against the company’s version in a court battle.

The judge who will decide the court battle signaled to Tribune Co. that it should be prepared to support the fairness of the expected LBO damage settlement when it comes time to seek plan confirmation.

“I don’t think I’m a pushover for a settlement, no matter how good some parties may think it looks,” the judge said.

Tribune Co. did not oppose the creditors committee’s bid for authority to steer the litigation.

Tribune, which publishes the Los Angeles Times, Chicago Tribune, Baltimore Sun and other newspapers and operates of a string of broadcast stations, filed for Chapter 11 protection in December 2008, less than a year after the LBO closed.


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  1. Ela Oct. 22, 2010 at 7:08 pm

    If Abrams, Michaels, and Zell chose to be well-behaved and fair-minded men instead of offensive slobs, none of this would have happened. Whatever one’s beliefs are, being an honest human being always works.

  2. Paul Smith Oct. 22, 2010 at 7:52 pm

    Sam Zell is better at throwing tasteless extravagant over the top birthday parties than running a business

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  4. Rance St. Ambrose, IV Oct. 23, 2010 at 1:58 pm

    Bye-bye Chicago Tribune.
    Perhaps President(?) “57 or 58 states” will get his grass hut brother George to lend nickle nosed Zell ennough out of his twelve bucks a year, to bail out his lying left wing rag.