Tribune Co’s Chapter 11 bankruptcy sits in limbo because negotiations regarding its reorganization plan collapsed as the company’s biggest creditors balked and decided to negotiate a deal without the debtor’s participation.
The original management-brokered settlement began to collapse late last month when court-appointed independent examiner Kenneth Klee filed a report evaluating claims that the Zell leveraged buyout was an example of “fraudulent conveyance,” meaning the transaction rendered the company insolvent from Day One.
That caused creditors to realign their positions based on the findings. It also emboldened new parties in the case, like litigious hedge fund Aurelius Capital Management, to boost their involvement.
The bankruptcy appointed examiner’s findings is the main variable causing the Tribune bankruptcy plan to fall apart and is pushing the company to the fringes of its own bankruptcy case. After 20 months in Chapter 11 bankruptcy, Tribune’s exclusive right to propose a reorganization plan has expired, that coupled with the examiner’s findings has created a feeding freezing with several emboldened creditors staking their claim in the Tribune media empire. Under the bankruptcy law, creditors now have the right to propose their own reorganization plans but doing so could create a protracted process that could include series of legal challenges brought by all sides. Even without the expected litigation, bankruptcy reorganization plans proposed by even a fraction of the Tribune Co’s creditors would involve additional months of disclosures, voting and a possibly lengthy confirmation process. What is more likely is that the Tribune Co. will attempt to recreate another restructuring plan that includes the key desires of all the most important and powerful creditors. But even this process could be cumbersome with so many parties involved and would not prevent other creditors from creating and submitting their on bankruptcy restructuring plans.