Reporting from Chicago -- Tribune Co. and a group of its senior creditors filed an amended plan of reorganization that the media company hopes will solve problems that prevented a Delaware judge from approving an earlier version in October.
In court documents filed Friday night, the company and its allies expressed hope that the new plan could pave the way to an exit from the nearly 3-year-old Chapter 11 proceeding. That will depend on how U.S. Bankruptcy Judge Kevin J. Carey responds to a new proposal that addresses disputes that cropped up among junior creditors after his ruling.
Tribune Chief Restructuring Officer Don Liebentritt said the company will ask for an accelerated timetable for plan approval at a hearing Nov. 22.
Carey had blessed a controversial settlement in which senior creditors would pay junior creditors $534 million, including $431 million for dissident noteholders led by New York hedge fund Aurelius Capital Management. But the judge stirred up fresh disputes when he ruled that subordinated noteholders known as the PHONES should be able to collect at least some of a $1.2-billion claim.
That opened the door to a parallel demand from Tribune Chairman Sam Zell, whose affiliate owns a $225-million note with similar subordination provisions. That note stemmed from the Chicago billionaire's ill-fated $8.2-billion leveraged buyout of the company in 2007.
Until Carey's ruling, the PHONES and Zell had been granted nothing in the settlement. But his decision means they might be entitled to more than $200 million in recovery, which would have to be carved out of the recoveries of other junior creditors like Aurelius and a large group of retirees.
Given the stakes, the ruling will almost certainly lead to new litigation. On Monday, Aurelius and its allies asked the judge to reconsider his findings involving the PHONES, arguing that he had been presented with only a partial reading of the subordination provisions. Separately, Aurelius served notice that it was appealing the judge's ruling on the fairness of the settlement.
The new plan by Tribune, the Official Committee of Unsecured Creditors, lender JPMorgan Chase and hedge funds Oaktree Capital Management and Angelo, Gordon & Co. makes no attempt to iron out the latest disputes. Instead, it proposes paying junior creditors $534 million and letting them fight over who gets what at the judge's direction. Meanwhile, they say, the company would be free to emerge from bankruptcy without further delay.
To facilitate all of this, the plan anticipates setting up a formal "allocation dispute protocol" under which the judge could oversee litigation of the disputes and reallocate the settlement proceeds accordingly before the company emerges. Alternatively, he could set the disputes aside until after the company emerges and hear the cases later. In that instance, the plan would reserve up to $215 million of the settlement proceeds to be distributed when the disputes are resolved.
What's clear is that the potential litigation probably will have major consequences for the various players among the junior creditors. Depending on how the subordination provisions end up being interpreted, the recoveries could swing dramatically.
The retirees, for instance, could see their recovery slip to $22.9 million from $37.8 million, plan documents said. The Aurelius-led noteholders, who have $1.3 billion in claims, could see a recovery of $467 million under a best-case scenario. In a worst case, the proceeds would shrink to $253 million, which would be a bitter pill for a group that has spent millions to defeat the original $431-million settlement, which it called inadequate.
Aurelius could not be reached for comment.
The surprise winners could be the PHONES and Zell. There remains a chance the judge could reconsider and grant them nothing. But under a best-case interpretation of their subordination documents, the PHONES could get as much as $196 million and Zell could be in line to collect as much as $63 million, documents said.
That would be a controversial result, given that Zell was the architect of a deal that left Tribune with $13 billion in debt and led to its bankruptcy less than a year later. Although his lawyers have long argued that Zell is not responsible for the collapse, the tycoon has become the target of accusations that the buyout was a fraudulent conveyance, meaning it left the company insolvent from the start.
Junior creditors continue to threaten Zell with a variety of claims, including breach of fiduciary duty, and some have said publicly that they are reluctant to see him gain at the expense of other creditors. Zell has asked the judge to have the charges dropped as frivolous.