By Michael Oneal |
WILMINGTON — Fresh from striking a hard-won compromise deal among many
of its key creditor constituencies, Chicago-based Tribune Co. took one
step forward and another one back at a hearing before a U.S. Bankruptcy
judge in Delaware Tuesday.
Presiding over a courtroom packed with almost 100 lawyers and
associates, Judge Kevin Carey blessed Tribune Co.’s exclusive right to
press ahead with its recently filed settlement plan, rejecting a request
to file a competing plan that came from a large group of disgruntled
creditors led by distressed bond investor Oaktree Capital Management.
At the same time, however, the judge signaled that he was in favor of appointing an independent examiner in the case to study and pass judgment on evidence that Tribune Co.’s 2007 leveraged buyout may have been improper, a move that could nudge Tribune Co., owner of the Chicago Tribune, and certain of its creditors back to the negotiating table.
The judge’s aim, attorneys on all sides of the case said, was to press Tribune Co. and its creditors to work even harder to come up with a settlement that would include as many parties as possible and avoid the threat of future, messy litigation. He may also be seeking legal support to help him sort out the thicket of messy issues in the event a settlement is ultimately contested.
“The judge just wants to make sure nobody has a possible basis to object to a plan at confirmation,” said Howard Seife of Chadbourne & Parke, lead attorney for the committee of unsecured creditors in the case.
The call for an examiner came from Wilmington Trust Co., which represents junior debt holders with $1.2 billion in claims. The group was given no recovery in the Tribune Co. plan filed Monday because its claims are subordinate to all others. Because of its relative lack of clout, many close to the case assumed its call for an examiner was merely a desperate attempt to disrupt the proceedings.
But at the hearing, Carey agreed with an argument brought by the U.S. Trustee in support of Wilmington that said an examiner could serve to broaden the settlement by providing a truly independent assessment of various legal claims in the case — most notably charges of “fraudulent conveyance” related to the failed $8.2 billion leveraged buyout led by Chicago real estate magnate Sam Zell in 2007.
The junior creditors have pressed the fraudulent conveyance charges, claiming that the debt-laden transaction rendered the company insolvent from the start. If proven, the charges would allow the judge to invalidate $8.6 billion in claims held by the senior creditors, leaving more for the others.
Following months of discovery that produced 3.5 million documents and emails related to the LBO, the strength of the junior creditor’s case allowed the most senior bondholders among them to carve out a settlement granting them 7.4 percent of the company’s value, or a 35 percent recovery on their $1.3 billion in claims. Senior creditors, meanwhile, would get 91.5 percent of the company under the agreement or a 62 percent recovery on $8.6 billion in claims.
Wilmington, however, was left out entirely and the Oaktree Group, which owns the senior debt, complained that the settlement unfairly favored Zell and bank lenders to the 2007 deal by granting them complete indemnification from any fraudulent conveyance charges arising from case without exacting any payment from them.
Oaktree also charged that management was feathering its own nest in the deal by including a proposal to carve out 7.5 percent of the company’s equity for vague and unspecified management incentive programs. Another senior debt holder, Angelo, Gordon & Co., also said it had a problem with the proposed management incentive plan.
Carey seemed sympathetic to both sides: He let Tribune Co. proceed with trying to push through its plan before a May 20 hearing on the matter. But he also encouraged agreement on appointment of an examiner that could independently sift through the charges and once-and-for-all establish the sort of reliable information about liability that would lead to a more inclusive settlement that all sides could agree was fair.
He didn’t respond to arguments that the creditors’ committee has already spent several million dollars (charged to the estate) to plumb the fraudulent conveyance charges, noting that the information gleaned in that investigation could be used to speed up a new, more independent inquiry.
Consequently Carey instructed Tribune Co.’s lawyers at Sidley Austin to schedule negotiations with Wilmington and others to discuss the scope and budget for an independent examiner and, possibly, to consider whether Wilmington should be brought into the settlement. He reminded both sides that the examiner would be free to pass judgment on issues that affected all sides, including charges that Wilmington wrongly released information under seal. They must report back on April 22.
“He’s stirring the pot,” said one attorney in the case. “That’s what judges do. They stir the pot so people will get together and settle.”
