Tribune Co. may be reorganized under new bankruptcy plan
Newspaper publisher Tribune Co. could end up being reorganized under the Chapter 11 plan filed on Sept. 17 by Oaktree Capital Management LP and Angelo Gordon & Co., whose funds hold what they say are several billion dollars in senior loan claims.
The plan by Oaktree and Angelo Gordon would enable the companies to emerge from reorganization while fraudulent transfer lawsuits continue over the second part of the $13.7 billion leveraged buyout led by Sam Zell in 2007. Creditors can file plans because Tribune's exclusive right to propose a reorganization expired in June after 18 months in Chapter 11.
The plan proponents said they will participate and are hopeful court-ordered mediation beginning Sept. 26 will bring agreement on a plan. If there isn't a "fully consensual" plan, the two said they are willing to negotiate over their proposed reorganization. The plan they filed was 79 pages long, not including exhibits and schedules. The accompanying disclosure statement takes up 216 single-spaced pages to describe the plan.
The plan is a separate reorganization for the Tribune parent and each of the dozens of subsidiaries. Oaktree and Angelo Gordon said it is possible that the subsidiaries, which have the operating companies, could emerge from reorganization while the parent remains in Chapter 11.
The plan by Oaktree and Angelo Gordon would recognize the validity of $6.6 billion in claims arising from the first part of the LBO in June 2007. The plan would form a litigation trust for creditors to prosecute a fraudulent transfer lawsuit aimed at $2.1 billion in debt arising from the second part of the LBO in December 2007. Oaktree and Angelo Gordon say that Tribune's examiner concluded there is a better than 50 percent chance the second part of the LBO in December 2007 can be attacked successfully. The first part, in June 2007, won't be attacked because the examiner, they say, found a less than 50 percent probability of success.
The plan proponents base their proposal on the assumption that the operating companies are worth less than the senior loans they guaranteed. Thus, creditors with lower priorities receive less or nothing, as the case may be. The plan proponents hold part of the $2.1 billion in debt that would be subject to attack.
The plan for the Tribune parent would provide an initial 4.2 percent recovery for $6.47 billion in senior loan claims. The recovery would be made up of 8.8 percent of a new term loan, 8.8 percent of excess cash, and 8.8 percent of the new stock. They would share the term loan, cash and new stock with holders of the $1.62 billion bridge loan and the $1.28 billion in senior notes. The new term loan would be the lesser of $1.2 billion or twice operating cash flow for the prior 12 months.
The recovery would be the same 4.2 percent for the bridge loan and the senior notes.
Other unsecured creditors of the parent could elect between receiving 10 percent cash or taking a pro rata share of the cash, debt and stock.
At the holding company, the $225 million in so-called EGI-TRB LLC notes and the $761 million in so-called Phones note claims are "likely" to receive nothing, the new disclosure statement says. If the claims survived attack, subordination provisions are to be enforced, and recovery on the debt would go to senior creditors. The bankruptcy judge would decide if the subordination provisions should be enforced.
At the operating subsidiaries, the senior loan claimants, as a result of the subsidiaries' guarantees, would see an 83 percent to 83.9 percent recovery from receiving 91.2 percent of the new term loan, 91.2 percent of available cash, and 91.2 percent of the new stock.
At the subsidiary level, the $1.62 billion bridge loan creditors wouldn't receive anything because of the subordination agreement.
General unsecured creditors at the operating companies, with claims of as much as $150 million, are being offered 65 percent if they vote for the plan or 10 percent if the class votes "no."
Tribune told its employees that the Oaktree-Angelo Gordon plan may become the basis for a reorganization if mediation fails.
Tribune withdrew its own Chapter 11 plan in August. It was designed to force through a settlement of claims resulting from the LBO. Tribune abandoned the plan following the report of the examiner, Kenneth N. Klee, who concluded that there was some likelihood that the second phase of the leveraged buyout could be attacked successfully as a constructively fraudulent transfer.
Klee found less likelihood that the first phase of the transaction could be unraveled as a fraudulent transfer. For a summary of some of the examiner's conclusions, click here for the July 27 Bloomberg bankruptcy report.
Tribune is the second-largest newspaper publisher in the U.S. It listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.
The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District Delaware (Wilmington).