New Tribune Bankruptcy Plan On The Table

Tribune Co. and many of its most important creditor groups announced a new settlement that could bring the company a step closer to resolving its nearly 2-year-old bankruptcy case.

The new agreement, like the ones before it, seeks to resolve legal claims stemming from Tribune Co.’s ill-fated 2007 leveraged buyout. Junior creditors have charged that the two-step transaction, which was led by Chicago real estate magnate Sam Zell, was a case of “fraudulent conveyance,” meaning it left the company insolvent from the start. The original plan embraced by Tribune Co., Oaktree and Angelo Gordon proposed settling claims related to the larger, first step of the Zell transaction by giving junior bondholders, such as Aurelius, $300 million in cash. Claims related to the second step would be put into a litigation trust, which would allow the junior creditors to fight in court for more recovery from the lenders, advisers, shareholders and Tribune officials involved in the deal. The company, meanwhile, would exit bankruptcy free and clear.

The bankruptcy plan would also require JPMorgan and senior lenders to increase upfront payments to junior bondholders by $120 million. Banks and hedge funds that own senior debt would contribute $102 million so that trade creditors such as retirees could be “made whole.” But sources close to the bankruptcy negotiations doubt that Aurelius will agree to the new bankruptcy plan because it supposedly does not pay them enough on their bankruptcy claims compared to what they believe they can get if they push harder. It is expected that Aurelius will propose its own bankruptcy plan and may even litigate the matter to extract even more value from their claims.