Aurelius Capital Management said Tribune Co. must call a halt to confirmation proceedings on its Chapter 11 plan, which are set to resume Tuesday in a Delaware bankruptcy court.
Recent amendments to Tribune’s plan mean senior lenders will have to be polled again on whether they like the deal the company is offering, according to Aurelius, a hedge fund that is backing a rival Chapter 11 plan.
New voting materials must be prepared and senior lenders asked to vote again before Tribune can continue its push for confirmation, Aurelius said in a court filing.
Tribune spokesman Gary Weitman said the confirmation hearing will resume as scheduled Tuesday.
Aurelius has been battling Tribune and its backers, including J.P. Morgan Chase & Co. (JPM), Angelo, Gordon & Co. and Oaktree Capital Management, over terms of the media company’s bankruptcy exit.
According to Aurelius, Tribune’s recent decision to offer senior noteholders and some other creditors a choice between a cash payout or a combination of cash, debt and stock in the reorganized publishing and broadcasting company calls for the company to send out ballots again to creditors affected by the change
“The confirmation hearing, as it pertains to the [Tribune Chapter 11 ] plan, must be adjourned,” Aurelius said in a filing late Monday with the U.S. Bankruptcy Court in Wilmington, Del.
The filing came as Tribune and its backers and Aurelius were in mediation, attempting to broker a deal that would end a hard-fought confirmation contest that began in March. If the mediation fails, confirmation hearings start up again Tuesday.
Publisher of the Los Angeles Times, Chicago Tribune, Baltimore Sun and other newspapers and operator of a string of broadcast stations, Tribune filed for Chapter 11 protection in 2008 and is trying to emerge with its balance sheet revamped.
Both the competing Chapter 11 plans swap debt for equity, and put most of Tribune in the hands of the banks that financed a disastrous leveraged buyout.
The chief difference between the two plans is the extent of legal immunity for LBO-related alleged wrongs, including alleged breach of fiduciary duty and fraud. Aurelius has been butting heads with Tribune and its supporters over the potential for collecting damages from the banks involved in the LBO.
Both plans allow some lawsuits to roll forward. Tribune’s plan incorporates what it says is a fair settlement with lenders. Aurelius says the settlement is too cheap for the damage done to the company, which filed for bankruptcy less than a year after it closed.
In Monday’s filing, Aurelius said the recent Tribune plan changes, which are billed as an improvement for the senior noteholders, represent only an “incremental improvement,” and falls short of what lower-ranking creditors would get if they sued the company’s banks.
Aurelius’ analysis says Tribune’s plan changes boost the company’s offer to senior noteholders from $431 million to $509.5 million, representing a partial recovery.
The hedge fund is a large holder of senior notes and says it’s hoping for a full recovery from suing against lenders involved in the buyout. All-out litigation would also translate into a 34 percent recovery for holders of a class of security called PHONES, the hedge fund said in Monday’s filing. Aurelius also holds PHONES.
