2 creditors file Chapter 11 plan in Tribune case

[September 18, 2010]  NEW YORK (AP) -- Two major creditors in the Tribune Co. bankruptcy case filed a proposed reorganization plan for the media company Friday. It seeks to speed up the company's exit from Chapter 11 by giving creditors the right to sue key players involved in the 2007 leveraged buyout that wound up driving Tribune into bankruptcy court a year later.

The plan was filed by two creditors that had been at odds with each other over Tribune's previous reorganization plan, which fell apart last month after a court-appointed independent examiner concluded that some of the negotiations leading up to the company's 2007 buyout bordered on fraud.

The examiner's report suggested creditors might be able to get more money by suing Tribune Chairman Sam Zell, the real estate mogul who orchestrated the deal, as well as other members of the board and some of the company's financial advisers.

Under Friday's proposed plan, a trust would be set up to collect money from any lawsuits filed after the company emerged from bankruptcy protection.

One creditor behind the new proposal is the hedge fund Oaktree Capital Management, which had objected to a plan Tribune put forward in April. The other is Angelo, Gordon & Co., a distressed-debt specialist that supported the plan, under which it would have taken control of the company along with JPMorgan Chase & Co. and others.

Zell took the company private in an $8 billion deal that saddled the company with debt. The load quickly became unsustainable as newspaper advertising revenue -- already slipping because of competition online -- plummeted during the recession. As revenue fell, the company was left without enough cash to make the regular payments on its borrowings. It filed for Chapter 11 protection in December 2008, citing nearly $13 billion in debt.

In April, Tribune proposed a reorganization plan that had the backing of leading creditors, including JPMorgan and Angelo, Gordon but not Oaktree. But that plan fell apart following the examiner's report on the buyout, and the company's window of exclusivity expired Aug. 8, meaning creditors were free to file competing plans.

Tribune, which owns the Chicago Tribune, Los Angeles Times and other newspapers along with broadcast stations, is scheduled to meet with creditors next week under the supervision of a court-appointed mediator to try developing a plan both sides can live with.

It was not immediately clear Friday how the proposal would affect ongoing negotiations with Tribune Co. management. The two creditors said in the filing that the plan "is presented only as an alternative in the event that the upcoming mediation does not produce a fully-consensual resolution to these cases."

The new plan could represent a bid by the two creditors to put more pressure on parties to reach agreement. The filing includes a warning that the company could be liquidated if an exit plan isn't approved.

Tribune spokesman Gary Weitman declined to comment on the filing, and lawyers representing Oaktree and Angelo, Gordon did not return messages. JPMorgan, a major creditor that was not a party to Friday's filing, also did not return calls.

However, in a memo to employees, Tribune CEO Randy Michaels and Chief Operating Officer Gerald Spector said the plan filed Friday could provide "the next best alternative" if the mediated talks next week don't produce an agreement.

The plan adopts the same financial projections that Tribune management laid out in its April proposal. That forecast envisions the newspaper advertising slump continuing for several more years, leaving the Tribune Co. with publishing revenue of $1.85 billion in 2012 -- a drop of more than $900 million, or 33 percent, from 2008 levels.

The outlook calls for a modest recovery at Tribune Co.'s television stations, although broadcasting revenue still isn't expected to rebound to its 2008 total of $1.17 billion. The plan foresees broadcasting revenue of $1.06 billion in 2012.

Earlier this week, junior creditors asked U.S. Bankruptcy Judge Kevin Carey in Wilmington, Del., for the right to sue Zell and others who profited from the deal.

Those creditors said they would hold off filing for claims right away while the mediation continues. But they are asking for permission now to make sure they can file claims ahead of a Dec. 8 deadline for doing so under the bankruptcy code should they decide to. That date will mark the end of Tribune's second year under Chapter 11 protection, after which creditors would lose their right to sue.

[Associated Press; By ANDREW VANACORE]

AP Business Writer Michael Liedtke in San Francisco also contributed to this story.

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