Tribune Co. creditor amends reorganization plan

By Michael Oneal
Posted March 28 at 6:31 p.m.

Aurelius Capital Management, the largest junior creditor in the Tribune Co. bankruptcy case, on Monday amended its proposed plan for restructuring the media company in an attempt to make the plan more palatable to senior creditors and the judge presiding over the Chapter 11 proceedings.

The move comes a little more than a week after U.S. Bankruptcy Judge Kevin Carey adjourned 10 days of hearings in the case with the warning that he saw problems with the Aurelius plan and a competing plan filed by Tribune Co. and its senior creditors that might make it impossible for him to approve either of them.

A source said the senior group, which includes lender JPMorgan Chase and hedge funds Oaktree Capital Management and Angelo, Gordon & Co., is also pondering how to amend its plan in response to the judge’s comments before the hearings resume in mid-April

The amended Aurelius plan seeks to placate the senior group by giving senior creditors a bigger slice of the reorganized company’s equity when Tribune emerges from Chapter 11. It also softens the emphasis on a key legal dispute Aurelius had raised.

Depending on how the judge rules on certain issues, the senior creditors could get close to 80 percent of the reorganized company’s equity under the new plan versus 51 percent in the original.

But the new plan would reserve almost half of the company’s projected total value of $6.75 billion (which includes cash and debt, in addition to equity) in a “litigation trust” to pay off more than $2 billion in potential damages stemming from legal claims raised by Aurelius and others related to Tribune Co.’s ill-fated 2007 leveraged buyout,  led by Chicago real estate magnate Sam Zell.

Freeing more of the equity portion of the company’s value addresses complaints by the senior group that the original plan put too much of the equity in reserve pending the outcome of litigation. That, they argued, would depress the trading value of the stock and interfere with the reorganized company’s ability to strike deals to take advantage of industry consolidation.

But the senior group may balk at the plan’s provision to continue holding so much cash and other value in reserve, given that senior creditors have offered to settle the buyout-related claims for around $500 million. The new Aurelius plan also does nothing to address complaints by the senior creditors that governance provisions in the original plan were also potentially disruptive.

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