Tribune lenders sue JPMorgan, claim buyout was fraud
A group of Tribune Co. lenders sued affiliates of JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. over the 2007 buyout of the newspaper publisher, claiming the banks knew the deal would ultimately fail.
When they pushed to close the two-stage transaction, the banks knew the $3.7 billion in financing “was tainted with fraud and other misconduct,” the lenders, who include hedge funds and investors who specialize in distressed debt, said in a complaint filed today in New York state court in Manhattan.
Since Chicago-based Tribune filed bankruptcy last year, lenders and other creditors have fought among themselves in court over whom was to blame for the company's bankruptcy and how to divide ownership of the biggest newspaper and television company in bankruptcy.
JPMorgan is allied with Tribune and hedge funds Angelo Gordon & Co. and Oaktree Capital Management LP, who are also buyout lenders but not part of the lawsuit. They have proposed splitting Tribune among themselves and settling some potential buyout lawsuits.
Other creditors have until midnight to file their own reorganization plans.
Lending Agreement
In the complaint, a group that holds about $767.7 million of the $8.3 billion buyout debt alleged JPMorgan and the other banks violated the lending agreement that binds all of the lenders and the banks.
The banks knew that the second stage of the transaction would add so much debt on the company that Tribune wouldn't be able to repay the loans, according to the complaint.
Spokesmen for JPMorgan and Citigroup didn't immediately return calls seeking comment. Bank of America spokeswoman Shirley Norton declined to comment.
Fighting among Tribune's creditors, who are owed more than $12 billion, intensified after July 27 when a bankruptcy examiner, Kenneth N. Klee, released a report that bolstered the position of lower-ranking creditors and lenders who funded the first stage of the buyout. Klee found that the second part of the buyout, which closed in December 2007, was vulnerable to a court challenge by creditors.
As part of the bankruptcy, the banks have claimed that if lenders in the first stage of the transaction win a lawsuit related to the second stage, the banks get to share in the monetary damages. The lenders want a judge to throw out that so- called sharing provision of the lending agreement.
The complaint claims the banks structured the deal in a way that reduced their risks at the expense of the lenders. The banks also hedged themselves through credit default swaps, which pay holders should a company go bankrupt, the lenders claim.
The case is Alden Global Distressed Opportunities Fund LP v. JPMorgan Chase Bank NA, 651884/2010, New York State Supreme Court (Manhattan).