The publisher of The Chicago Tribune and the Los Angeles Times has reached an agreement on a plan of reorganization with Oaktree Capital Management and Angelo Gordon & Co. The Tribune Co filed for Chapter 11 bankruptcy two years ago after real estate developer Sam Zell bought the company using piles of debt. The plan will allow the Tribune Co to exit bankruptcy.
(Reuters) – The bankrupt publisher of The Chicago Tribune and Los Angeles Times said on Tuesday it reached an agreement with two hedge funds that would clear the way for it to end nearly two years in Chapter 11.
The Tribune Co’s bankruptcy has been mired in a battle among creditors over who is to blame for the company’s 2008 failure, which came less than year after real estate developer Sam Zell completed a deal to take control of the company using piles of debt.
Tribune said in a statement it agreed with Oaktree Capital Management and Angelo, Gordon & Co LP on a plan of reorganization that would leave the two hedge funds with significant ownership stakes in the company.
The plan also would allow Tribune, which also owns nearly two dozen television stations, to exit bankruptcy before resolving a complex web of legal claims.
The deal would need approval of Delaware’s bankruptcy court, and the official committee of unsecured creditors in the bankruptcy were quick to announce their opposition.
Tribune’s statement only mentioned the support of the two funds, although the mediator who oversaw the talks among creditors indicated he hoped for broader backing.
“The mediator is confident that the proposed plan will lead to additional constructive discussions between and among the debtors and other parties,” said a court filing from Kevin Gross, the Delaware bankruptcy judge who acted as mediator. He said mediation would continue.
Tribune said the two hedge funds hold a “significant” amount of the $6.6 billion in loans stemming from the first part of the two-step deal that put Zell in control.
Those loans would be swapped for stock in the company, as well as new debt and cash, when it emerges from bankruptcy.
For Angelo, Gordon, the deal deepens its investment in newspapers, adding to its stakes in the publishers of the Philadelphia Inquirer and Minneapolis StarTribune.
Tribune’s senior bondholders would receive a total distribution of $300 million, or about 23 percent of their claim amount, in cash.
In addition, Tribune said the bondholders would receive a portion of a trust that will be set up to pursue legal action over the second part of Zell’s takeover deal.
An examiner reported in July that the second part of Zell’s takeover would likely be found by a judge to be an “intentional fraudulent conveyance.”
Tribune said the litigation trust will allow an independent trustee to pursue those claims of fraudulent conveyance, which take aim at $2.1 billion of loans used to finance the second half of the takeover.
“We remain confident that additional settlements will be reached,” said Don Liebentritt, Tribune’s chief restructuring officer, in a statement.
The official committee of unsecured creditors said it opposed the settlement and noted that the hedge funds are targets of litigation that the committee plans to pursue.
“The Committee is disappointed that Tribune and some senior lenders have reached an agreement that does not provide fair value to all creditors,” said a statement from the committee.
The committee had supported a settlement reached earlier this year, which appeared to treat them better than the proposal announced on Tuesday.
That earlier deal did little to halt the legal fights and eventually the deal collapsed following the examiner’s report.
According to the mediator’s outline, the settlement on Tuesday appeared relatively similar for senior creditors to the deal Tribune struck earlier this year with Angelo, Gordon & Co, JPMorgan Chase & Co and Centerbridge Partners.
Senior bondholders are recovering 23 percent in cash under Tuesday’s proposal, less than the 35 percent under the previous settlement which collapsed, but their recovery could increase depending on the outcome of the litigation trust.
Under both settlements, $1.6 billion of bridge loan claims and more than $750 million of junior bonds will be wiped out. Under Tuesday’s settlement, both those claimants could get some recovery from the litigation trust.
Tribune declined to comment beyond the statement. Attorneys for senior bondholders, junior bondholders and bridge loan claimants did not immediately return a call for comment.
The case is In Re Tribune Co, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.
(By Tom Hals. Additional reporting by Chelsea Emery in New York; editing by Carol Bishopric)