Tribune creditors win chance to halt bankruptcy exit plan

Tribune Co. creditors can halt the television and newspaper company’s exit from bankruptcy temporarily if they agree to post a $1.5 billion bond, a judge ruled.

U.S. Bankruptcy Judge Kevin Carey agreed with noteholders who claimed they would be “irreparably harmed” if Tribune exits bankruptcy before creditors have a chance to try to overturn the company’s reorganization plan by appealing it to a higher court.

“It will certainly be difficult to ‘unscramble the egg,’” Carey said yesterday in an opinion in U.S. Bankruptcy Court in Wilmington, Delaware.

Aurelius Capital Management LP and other holders of Tribune’s oldest debts had asked Carey to suspend his order approving the plan and a related legal settlement until a higher court reviews the case.

Aurelius claims Carey erred when he approved a settlement that ended some lawsuits against lenders that financed the more than $8 billion leveraged buyout of Tribune in 2007.

Carey ruled that before creditors holding the older debt can move forward with their appeal, they must post a bond for $1.5 billion to ensure that newer lenders who support the reorganization plan aren’t harmed by any delay. The creditors must post the bond by Aug. 29, Carey ruled.

Request Denied

Aurelius didn’t respond yesterday to an e-mail sent to the company’s general e-mail address or to a phone call requesting comment on the ruling.

Tribune Chief Executive Officer Eddy Hartenstein said in an e-mail to employees that he expects creditors to “seek some relief” from Carey’s ruling yesterday, possibly by filing another appeal.

“It is extremely important that we all remain intently focused on operating our business units efficiently and on serving our customers,” Hartenstein said.

Some of Tribune’s oldest bonds, issued in 1995, rose today by more than 3 percent. The 7.5 percent bonds, which mature in 2023, climbed to 34.25 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Carey denied a related request by creditors to try speed the appeal process by sending the case directly to the U.S. Court of Appeals in Philadelphia. Instead, it must first go to a U.S. District Court judge in Wilmington.

$13 Billion Owed

Tribune, based in Chicago, owes creditors about $13 billion. The company is valued at more than $7 billion, Tribune said in court papers.

Tribune owns the Los Angeles Times, the Chicago Tribune and television and radio stations around the country.

If the creditors fail to post the bond, or should the appeals fail, Tribune will be free to move to the next phase in the bankruptcy: winning approval from federal regulators to transfer its radio and television licenses to the proposed new owners.

Tribune officials have said the company will be able to exit bankruptcy this year if federal regulators approve the reorganization plan and the license transfers.

The case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).