In a bankruptcy case that is never ending, the Tribune Co. bankruptcy plan was rejected by U.S. Bankruptcy Judge Kevin J. Carey because of its unfair treatment of certain subordinated claims known as PHONES.
In his opinion, Carey approved a controversial settlement that was at the heart of a plan of reorganization proposed by Tribune Co., the creditors' committee and senior creditors Oaktree Capital Management, Angelo, Gordon & Co. and JPMorgan Chase & Co. The proposed settlement would pay junior bondholders led by Aurelius $431 million if they agree to drop certain buyout-related claims against the senior creditors. And it would give the junior bondholders a large slice of a "litigation trust" set up to prosecute or settle any leftover claims, such as those against Zell and former Tribune Co. shareholders.
Even as he approved the settlement, however, Carey rejected the overall plan, partly because he decided the PHONES were being left out unfairly. Responding to an objection raised by PHONES attorney Robert Stark, Carey ruled that PHONES had been wrongly subordinated to the junior noteholders and other creditors, including a group of retirees and trade creditors. He said if the senior group could solve this and other problems, he would likely approve their plan.
And while on the surface, bankruptcy judge Carey's ruling may seem fair, at the heart of the matter some believe the opinion may open the door to the hotly opposed Sam Zell to recoup a portion of his buyout investment. This is the same buyout that many allege stripped Tribune Co. of assets and drove the company into bankruptcy. Zell and others in the bankruptcy are already facing litigation regarding the controversial buyout and it is highly unlikely most creditors will stand by while Zell recoups any portion of his investments in the bankruptcy.