Bankruptcy judge Kevin Carey, who is presiding over Tribunes’ Chapter 11 bankruptcy case, approved an independent examiner to review the 2007 leveraged buyout of the media conglomerate and the potential claims arising from it that might be brought on behalf of the bankruptcy estate.
Tribune, which owns the Los Angeles Times, Chicago Tribune, The (Baltimore) Sun and other dailies, along with 23 TV stations, filed for bankruptcy protection in December 2008 because of dwindling advertising revenue and a debt load of $13 billion, much of it stemming from the buyout.
A group of bondholders represented by Wilmington Trust Co. sued JPMorgan Chase and other banks that financed the buyout in March, claiming they knew that the resulting debt load would leave Tribune insolvent. The bondholders argue that the deal was fraudulent because it loaded up Tribune with too much new debt that was used to cash out Tribune stockholders. They asked in the lawsuit that the banks’ secured claims be disallowed, or at least paid only after the bondholders’ unsecured claims are satisfied. Typically, secured claims get higher priority.
The independent examiner will review the leveraged buyout to discover if the leveraged buyout was done with the full knowledge that it would plunge Tribune into Chapter 11 bankruptcy. He will also analyze whether the bondholders violated bankruptcy court rules and should be penalized for filing their lawsuit and improperly disclosing confidential information in doing so. Currently both sides are still fighting over what documents the examiner should be given access to and whether or not he would have access to privileged and confidential information. For his part the examiner has expressed that his investigation would be severely hampered if information was withheld and the bankruptcy judge and trustee are in agreement. A matter of fact, the bankruptcy judge is giving the examiner free reign saying that he can have access to all information and even share confidential and privileged information with outside parties if necessary.