Reporting from Chicago — Tribune Co. and its allies in bankruptcy court were optimistic that their plan for reorganizing the company would eventually win a Delaware judge's approval.
But even as lawyers hunkered down to analyze a long-awaited decision in the case, several sources acknowledged that significant challenges remain to resolve the nearly 3-year-old bankruptcy.
On Monday, U.S. Bankruptcy Judge Kevin J. Carey issued a 126-page decision clearly favoring a restructuring plan proposed by Tribune and a coalition of senior creditors, including lender JPMorgan Chase & Co.
Carey rejected both that plan and a competing proposal offered by hedge fund Aurelius Capital Management and a group of junior bondholders. But the judge said that if both plans were adjusted to meet his objections, he would choose the Tribune-sponsored plan because it had more support among creditors and a better chance of success.
"While there was no winner, at least officially, there is a silver lining in what the judge had to say," Don Liebentritt, Tribune's chief restructuring officer, wrote in an email to employees Tuesday.
Tribune owns the Los Angeles Times and Chicago Tribune, among several other newspapers, and television stations including KTLA-TV Channel 5.
Particularly problematic could be the judge's concern over how the senior creditors' plan treated a group of investors who hold junior bonds known as the PHONES, several sources said.
The PHONES have more than $1 billion in claims but get nothing in the company-sponsored plan. Carey took issue with how the Tribune-sponsored plan deals with the PHONES subordination agreement.
Sources said it was likely that the decision would energize the PHONES trustee, Wilmington Trust Co., to press for a slice of the settlement proceeds, potentially adding another level of complexity to the case.
Wilmington Trust's lawyer didn't return calls for comment.
Tribune employees, meanwhile, reacted with alarm to the judge's rejection of plan provisions shielding them from litigation stemming from the company's 2007 leveraged buyout. Tribune had sought releases for employees who sold Tribune stock into the deal.
"We haven't given this up yet," Liebentritt said, "but the bar to overcome is quite high."