Tribune Co. creditors sue over 2007 buyout

A group of Tribune Co. creditors sued the banks behind the publisher's 2007 leveraged buyout, claiming the $8 billion in loans they arranged for the deal doomed the company to bankruptcy.

Wilmington Trust Co., the agent for bondholders owed $1.2 billion, filed the lawsuit yesterday in U.S. Bankruptcy Court in Wilmington, Delaware, against JPMorgan Chase Bank, Merrill Lynch Capital Corp., Citibank NA, Bank of America NA and Morgan Stanley & Co.

The banks knew that the buyout "would render Tribune insolvent and, ultimately, drive it into bankruptcy," attorneys for the bondholders wrote in their complaint. The bondholders want to change the repayment order among Tribune's creditors so that they will be paid before those lenders.

Tribune managers are trying to negotiate a reorganization that would avoid a long court battle over claims the buyout was a so-called fraudulent transfer that left the Chicago-based company insolvent and harmed junior creditors.

Lower-ranking creditors claim the buyout was a fraudulent transfer because it loaded billions of dollars of debt onto Tribune's newspapers, television stations and other operations without giving them any value in return. Tribune's newspapers include the Los Angeles Times and the Chicago Tribune.

Real-estate billionaire Sam Zell used more than $8 billion in loans to take control of Tribune in 2007. One year later, he put the company into bankruptcy.

Creditors DividedThe buyout divided Tribunes creditors into two camps: the lenders who are owed more than $8 billion and two sets of bondholders owed about $2.5 billion, according to court records.Because the bondholders' debt ranks lower than the bank loans, they may get nothing unless a judge rules that the leveraged buyout was a fraudulent transfer and rearranges the payment priority of the creditors.Four of Tribune's pre-buyout bonds rose in after-hours trading yesterday after the lawsuit was reported. The 5 1/4 percent bonds due in 2015 had the biggest gain, jumping 22 percent to 32.38 cents on the dollar.Brian Marchiony, a spokesman for JPMorgan, and Alex Samuelson of Citibank declined to comment on the Wilmington Trust lawsuit. Scott Silvestri, a spokesman for Merrill Lynch owner Bank of America, and Carissa Ramirez, spokeswoman for Morgan Stanley, didn't return calls seeking comment.Separately, Tribune asked the judge overseeing its bankruptcy case to dismiss a proposed management bonus program. The company said it intends to make the bonuses part of its reorganization plan, as U.S. Bankruptcy Judge Kevin Carey suggested in January.The bonus program would pay as much as $20 million to the company's top 30 to 40 executives. Once Tribune files its plan of reorganization, creditors will vote on it and Carey will make a final decision on whether the plan should be approved.The case is Wilmington Trust Co. v. JPMorgan Chase Bank NA, 10-50732, and the bankruptcy case is In re Tribune Co., 08- 13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).