Stalled Tribune Bankruptcy Enters Nonbinding Mediation

September 6th, 2010 by Reed Allmand

Bankruptcy Judge Kevin Carey has called for a nonbinding mediation process weeks after Tribune bankruptcy negotiations collapsed and the debtor’s reorganization plan was rejected.  The mediation process was requested by Tribune Co.

The move comes after a company-sponsored reorganization plan unraveled several weeks ago in the wake of an independent examiner’s report that criticized elements of Tribune Co.’s disastrous 2007 leveraged buyout. Efforts to find a new compromise have collapsed amid escalating bickering over legal claims tied to the buyout led by Tribune Co. Chairman Sam Zell.

The findings of the examiner in Tribune’s Chapter 11 bankruptcy have completely reordered the power of creditors in this bankruptcy.  Many junior creditors have now stepped forward in an effort to supplant more senior creditors who would have benefited under the now rejected Tribune bankruptcy reorganization plan.  The ramifications of the examiner’s findings has included the stalling of the bankruptcy case, the inability of creditors and debtors to come to a compromise on the bankruptcy reorganization and the threat that the Tribune bankruptcy could fall into a quagmire of numerous lawsuits that could literally eviscerate the company.  One of the risks that Chapter 11 bankruptcy companies face is the inability to bring the most important creditors to a point where they can agree to a reorganization that will help the bankrupt company emerge whole and viable.  Hopefully the mediation process will help them reach a compromise. But because the mediation process is nonbinding, there is a real risk that it may not bring the parties any closer to a resolution; but at least it will force them to the table. At this point Tribune has declined to resubmit a reorganization plan for their Chapter 11 bankruptcy; but both creditors and debtors have only until mid-September to present to the mediator their suggestions for resolving the conflict.