WILMINGTON, Del. — The Tribune Co.’s plan to emerge from bankruptcy has unraveled in the wake of an independent report concluding that talks leading up to the company’s 2007 leveraged buyout bordered on fraud, attorneys said Friday.
The report released last month by a court-appointed examiner forced Tribune and its creditors to rethink a settlement agreement that formed the basis of its reorganization plan.
Under Tribune’s plan, JPMorgan Chase and distressed-debt specialist Angelo, Gordon & Co. would have been among the new owners of the company’s media properties, which include the Los Angeles Times, the Chicago Tribune, other daily newspapers and 20 broadcast stations.
But attorneys told Delaware bankruptcy judge Kevin Carey on Friday that JPMorgan and Angelo Gordon had dropped out of the agreement, and that talks on a consensual reorganization plan had broken down.
“The debtor has tried mightily to bring the parties together,” Tribune attorney James Conlan. “That has not happened.”
Conlan also confirmed that Tribune had not been party to separate negotiations among its creditors.
Tribune will file revisions to its plan by next Friday in a final effort to win the support of creditors. The revisions will be the subject of hearing on Sept. 15.
“Those amendments will be designed to achieve a ‘yes’ vote from all creditor constituencies, who we believe upon reflection should be in the money,” said Conlan, who warned that if creditors don’t go along, Tribune may be forced to bring a lawsuit over the fraudulent transfer issues raised by the examiner.
The examiner, Kenneth Klee, criticized Tribune’s management, board and some of the lenders involved in the 2007 buyout, which was orchestrated by real estate mogul Sam Zell. Klee concluded that it is “somewhat likely” that a court would conclude fraudulent behavior occurred in the final stages of the deal.
The buyout left Tribune saddled with huge debt, and as the recession deepened in December 2008, the company filed for Chapter 11 bankruptcy protection.
Klee described Tribune’s decision to shoulder the additional debt as irresponsible and also criticized the deal’s main lenders.
Junior bondholders 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.
Carey moved several deadlines in the case to give parties time to respond to the examiner’s report, and Tribune asked him for even more time last week so it could continue negotiating with its creditors.
“Everybody’s frustrated,” said Daniel Goldman, an attorney for Centerbridge Partners, which leads a group that owns outstanding senior bond debt and would have received a 7.4 percent stake in Tribune under the settlement agreement.
“We believe the agreement is null and void,” Goldman said. “Now, there is no underpinning for the debtor’s plan.”