More roadblocks crop up as Tribune Co. tries to emerge from bankruptcy - Objections to Chapter 11 disclosure statement complicate company's efforts to

More roadblocks crop up as Tribune Co. tries to emerge from bankruptcy - Objections to Chapter 11 disclosure statement complicate company's efforts to win judge's approval
By Michael Oneal
Copyright © 2010, Chicago Tribune
9:06 p.m. CDT, May 13, 2010
http://www.chicagotribune.com/business/ct-biz-0514-tribune--20100513,0,7260707,full.story


Objections to Tribune Co.'s Chapter 11 disclosure statement flooded into U.S. Bankruptcy Court in Delaware on Thursday, complicating the company's efforts to win a judge's approval of the document at a key hearing next week.

The filings included a new objection from a previously silent group of senior creditors angry over its treatment in the company's plan of reorganization, further splintering the all-important senior creditor class in the case.

The U.S. Department of Labor also weighed in, saying the document does not give ample disclosure to the agency's investigation into whether Tribune Co.'s contested 2007 leveraged buyout violated federal labor laws.

Legal experts said it was difficult to tell at this point whether the objections could disrupt the timing of Tribune Co.'s exit from bankruptcy court, which is scheduled for mid-August.

But at the least, Tribune Co. lawyers have their work cut out for them to address all the concerns in a new draft of the disclosure statement, which U.S. Bankruptcy Judge Kevin Carey will consider approving at Thursday's hearing.

"Obviously, we have a lot of problems with it," said White & Case attorney Thomas Lauria, who represents the newly dissident creditor group.

The disclosure statement is a document that outlines a proposed reorganization plan for a debtor in Chapter 11 and provides enough background information so creditors can make an informed vote on the plan. Once a disclosure statement is approved, the debtor has 60 days to round up enough votes for the plan in an exercise known as the confirmation process.

Most of Thursday's objections said Tribune Co., which owns the Chicago Tribune, Los Angeles Times and other media outlets, didn't provide enough information about how the settlement plan was reached or how it took into account charges brought by junior creditors that the 2007 LBO was an example of "fraudulent conveyance," meaning the debt-heavy deal rendered the company insolvent from the start.

One combative junior creditor group suggested that a new plan draft should await the results of an inquiry into the LBO-related charges by Kenneth Klee, the recently appointed independent examiner in the case.

Objectors also wanted to see more disclosure of those charges to judge how strong they were, and a better accounting of how they apply to each of many parties to the transaction, not just the lenders.

Prior to Thursday's objection deadline, at least one key group of senior creditors, led by distressed-investment hedge fund Oaktree Capital, had publicly objected to the plan.

The Oaktree group complained that the settlement was too generous to junior creditors and didn't share the costs of the settlement between lenders and other exposed parties, such as Tribune Co. Chairman Sam Zell and the company's former shareholders.

Since Tribune Co. first proposed the pact last month, the Oaktree group has shrunk from about $3.6 billion in claims to $2.3 billion, filings show. But on Thursday, the group was joined in its opposition to the plan by holders of $1.6 billion in claims stemming from a bridge loan used to finance the LBO.

Although the bridge lenders are technically part of a senior lender group with $10.3 billion in claims, they were treated much differently in the settlement plan because loan documents gave them fewer protections. Senior creditors like Oaktree and Angelo, Gordon & Co., which signed on to the deal, stand to get 50 cents to 60 cents on the dollar in value for their claims, while the bridge lenders are looking at about a half-cent.

"We don't think there's any rationale for that," Lauria said, promising to fight for a better deal.

Meanwhile, the Labor Department argued in a filing that the disclosure statement must provide more information on the potential risks for creditors stemming from its monthslong investigation into whether the LBO's use of a complex structure reliant on an employee stock ownership plan violated the Employee Retirement Income Security Act of 1974 (ERISA).

The agency pointed out that the federal district court in Chicago recently denied Tribune Co.'s motion to dismiss a class-action suit against fiduciaries to the ESOP, including Zell, charging that they had breached their fiduciary duty by engaging in "prohibited transactions." It also contested a provision in Tribune Co.'s settlement plan that would release Zell and others from any claims arising from ERISA violations.

In a statement, Tribune Co. said it remains confident in its ability to push through its plan and avoid more litigation.

"The plan of reorganization we have filed with the bankruptcy court is fair to our creditors and in the best interests of all parties involved with our Chapter 11 process," the company said. "We remain confident in our ability to get the plan approved by our creditors and confirmed by the bankruptcy court."

mdoneal@tribune.com