By Michael Oneal | Junior
bondholders in Tribune Co.’s bankruptcy case argued Friday that the
company has wrongly set aside $117 million generated by its joint
venture with the TV/Food Network to pay for legal, consulting and
investment banking fees incurred by the lenders to its failed 2007
leveraged buyout.

Court papers outlining the dispute had earlier revealed that Tribune
Co. last year paid out around $25 million to cover the fees before U.S.
Bankruptcy Judge Kevin Carey halted them.

But in the arguments Friday, the bondholders said the company had saved up almost four times that much through a non-debtor subsidiary to cover any future payments allowed by the court. The subsidiary has a joint venture with Scripps Networks, the owner of the Food Network.

Lawyers for Tribune and J.P. Morgan Chase, the agent for the lenders, countered that the payments were dictated by the LBO lending agreement, which predated the bankruptcy. Tribune Co. has argued that it was holding to that agreement  so J.P Morgan and the others wouldn’t seek broader recovery from the Food Network subsidiary, which had partly guaranteed the LBO debt, but which was left out of the bankruptcy for other business reasons.

Carey said he would need time to rule on the issue. He suggested that the two sides agree to continue suspending the payments, which were stopped five months ago, but didn’t continue his initial order.

Akin Gump partner Daniel Golden, who represents Centerbridge Partners, a distressed asset investor that owns most of the junior bonds, suggested that if the fee issue wasn’t resolved through the hearing, his client would likely disrupt Tribune Co.’s attempts to forge a consensual restructuring plan among its creditors by next Wednesday’s March 31 deadline. 

Carey also saw a rough road ahead. “Based on what I see developing,” he said, “we might be facing a contested confirmation (process).”