Bankruptcy judge Kevin Carey approved the Tribune Company's exclusivity extension request, allowing the company until the end of March to resolve outstanding issues delaying the company's emergence from bankruptcy and present an effective reorganization plan. The main point of contention is an $8.2 billion leveraged buyout in 2007 that according to an official committee of unsecured creditors, left the company bankrupt. The unsecured creditors are requesting permission to file a lawsuit against the holders of the secured claims for their role in the leverage buyout. Furthermore, the unsecured creditors are accusing secured creditors of intentionally using the leveraged buyout when they knew it would leave the Tribune Company insolvent. If the committee of unsecured creditors wins their lawsuit, billions of dollars in secured claims will be disallowed in the Tribune Chapter 11 bankruptcy.
If the Tribune company is unable to resolve its dispute with the committee of unsecured creditors before the end of March, many analysts are predicting the equivalent of World War III in the Tribune's Chapter 11 bankruptcy. At the end of the exclusivity period, creditors will have an opportunity to present competing reorganization plans and by April (if the leveraged buyout dispute is not resolved) the committee of unsecured creditors may be given the right to litigate their claims. Such litigation during a bankruptcy can cause serious delays at best and even threaten the survival of the bankrupt company depending on how the issue is handled. In the case of Chapter 11 bankruptcy, it is always best to resolve outstanding issues as quickly as possible. The fact that this leveraged buyout issue has not been resolved in the Tribune's Chapter 11 bankruptcy is definitely cause for alarm.