Suit: Tribune Co. held $117 million to defend banks
Tribune Co. wrongly set aside $117 million to pay the legal defense of JPMorgan Chase & Co. and other lenders who are being sued by bondholders of the bankrupt publisher, creditor lawyers said.
The creditors want a judge to force the lenders to return as much as $25 million the banks have already paid to lawyers and other advisers to defend against claims they doomed Tribune to bankruptcy in 2007 by arranging $8 billion in loans used in the company's buyout.
"This is a very, very bad precedent," creditor attorney David Rosner said during a hearing today in Wilmington, Delaware.
The creditors have asked U.S. Bankruptcy Judge Kevin Carey to change the payment priority of Tribune's debt so they will be paid ahead of the banks. Tribune has financed the banks' defense against any lawsuits that might force that change, according to court documents. The payments were halted after creditors complained last year.
Dennis Glazer, a lawyer for New York-based JPMorgan, said the payments are required by the loan agreements.
Carey told both parties he isn't sure how he will rule on the creditors' request to return the $25 million and to prevent any future payments to the lenders.
Longer HearingHe asked both sides if their battle should be put off until a longer court hearing begins in the coming months to debate a plan of reorganization.Rosner, who represents bondholder agent Law Debenture Trust Co. of New York, said the fee issue should be decided now because it is separate from the other battles likely to be a part of the reorganization hearing.Glazer said JPMorgan isn't willing to put off its demand that defense payments from Tribune resume.Carey didn't issue a ruling and didn't say when he might decide the issue. There is currently no formal agreement among the parties that would prevent Tribune from resuming the payments.The buyout and Tribune's 2008 bankruptcy divided the company's creditors into two camps. The company's lenders are owed more than $8 billion, while two sets of bondholders are owed about $2.5 billion, according to court records.Avoid Long BattleTribune managers say they 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.The bondholders 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. The company's newspapers include the Los Angeles Times and the Chicago Tribune.The bondholders sued JPMorgan Chase Bank, Merrill Lynch Capital Corp., Citibank NA, Bank of America NA and Morgan Stanley Co.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).For Related News and Information: Top Stories: TOP Top legal stories: TLAW Bloomberg legal resources: BLAW Bankruptcy news: NI BCY BN Entertainment news: NI ENT BN Tribune financial analysis: TRB US FA