Dow Jones Daily Bankruptcy Review | Lenders joined a federal
bankruptcy watchdog in protesting the continued flow of bonuses to top
executives as Tribune Co. seeks to ease its way out of Chapter
11, leaving behind billions in unpaid bills.
Wells Fargo Bank N.A. led lenders behind a $1.6 billion loan to the
publishing company in objecting to the latest round of bonuses proposed
by Tribune — a $43 million package that would bring the total doled out
to management to $115 million. The request also caught the eye of U.S.
Trustee Roberta A. DeAngelis, charged with ensuring that the company
adheres to bankruptcy court protocol and keeps its creditors in mind
when drafting its reorganization strategy.
“The debtors themselves have proposed a reorganization plan, which promises nothing or next-to-nothing for various classes of Tribune creditors,” DeAngelis said in papers filed Thursday. “Now is not the time for yet another round of bonuses.”
Tribune wants Judge Kevin Carey of the U.S. Bankruptcy Court in Wilmington to take up its newest incentive proposal at a hearing June 16. But DeAngelis and the lenders insist that, at the very least, discussion of the bonuses should be delayed until the company’s confirmation hearing, where Carey will consider approving a bankruptcy exit strategy that they say is inextricably intertwined with the bonuses.
“The debtors propose to pay millions of dollars to management under the 2010 management incentive program, while paying almost nothing on account of the $1.6 billion of claims of the bridge lenders,” the lenders said. “The court should evaluate these substantial payments to insiders in the context of the confirmation plan.”
The judge has recognized the connection between the bonuses and the plan, this month requiring Tribune to include the details of its incentive proposal in the Chapter 11 plan explanation. Now, the lenders warn that considering the bonus plan before the confirmation could allow the publishing company to skirt questions they should be forced to confront.
“The debtors should not be permitted to avoid such scrutiny or moot a confirmation objection by the bridge agent simply because they sought approval of the 2010 (management incentive plan) outside of the confirmation process,” the lenders said.
The U.S. Trustee, too, believes there’s still more investigating to be done before the bonuses come up for approval. She said she needs more time to conduct a thorough discovery of the bonuses than the June 16 hearing date allows.
This is not the first time the so-called bridge lenders, led by Wells Fargo, have taken aim at Tribune over executive pay. Earlier this month, during a hearing in which the company sought and won approval to distribute its bankruptcy exit plan outline, the lenders faulted the company for failing to disclose the details of the managers’ compensation.
If Tribune’s plan is approved by the bankruptcy court, the bridge lenders are in line to see $74 million , amounting to a 4.6 percent recovery. In total, Tribune is distributing only about half of the $12 billion it owed upon entering bankruptcy protection as part of its reorganization plan.
