U.S. Bankruptcy Judge Kevin J. Carey has begun examining the two competing bankruptcy reorganization plan for Tribune Co. which has become an all out war between pre-leveraged buyout creditor and post-leveraged buyout creditors.
Disputes over the LBO (leveraged buyout) led by real-estate billionaire Sam Zell have pitted holders of about $2.5 billion in debt from before the buyout against lenders owed more than $10 billion for funding the deal. JPMorgan and other lenders now are seeking immunity from a proposed lawsuit by the rival creditors that a court-appointed examiner concluded the lenders may lose if it went to trial.
Those creditors who claim that the leveraged buyout essentially bankrupted Tribune Co. are pusing for the right to sue the buyout investors and to be compensated first if they win the lawsuit.
The lender lawsuit may bring more than $1.57 billion to non-LBO creditors, Aurelius said in court papers while predicting a 57 percent chance of victory. If Aurelius wins, the lenders wouldn't recover anything until the pre-buyout creditors are repaid all $2.5 billion they claim they are owed.
Those creditors who funded the leveraged buyout balk at the proposal insisting that their plan is the best for the media company's future and that they and Tribune Co, should be shielded by any other litigation from the group of junior noteholders. But there is still a possibility that both restructuring plans may be rejected by the bankruptcy judge. If that happens this bankruptcy case could drag on even longer. Could we see a situation where Tribune Co. simply opts for bankruptcy liquidation? While possible, it's not likely. Even if the company liquidated in Chapter 7 bankruptcy they would still need to settle the dispute of which group of creditors should get paid first.
(source: http://www.bloomberg.com/news/2011-03-07/tribune-creditors-open-bankruptcy-court-dispute-over-buyout.html )