Tribune Co. filed another reorganization plan backed by its leading creditors, in the hopes that it will soon exit the Chapter 11 bankruptcy which has gone on for two years now.
The plan incorporates the terms from two previously announced settlement pacts by the company’s unsecured creditors and leading lenders. It would hand ownership of the company to holders of its senior loans, led by J.P. Morgan Chase & Co., Angelo Gordon & Co. and Oaktree Capital Management.
Senior bondholders would receive $420 million, or about 33%, of what they are owed, plus a stake in a trust to fund lawsuits stemming from the buyout.
After the Sam Zell $8.2 billion buyout was determined as a contributing factor to the company’s insolvency, junior creditors in the bankruptcy case were emboldened and threatened to use litigation if their demands were not met. Usually, junior creditors receive very little or even nothing in a bankruptcy reorganization after senior creditors are reimbursed. But in the Tribune bankruptcy, junior creditors argued that the Zell buyout contributed to their disenfranchisement and that the senior creditors should not be given more compensation while junior creditors were left with nothing or very little.
In response to the threat of litigation, Tribune has created a trust where funds will be set aside to pay for any legal claims that may arise. The hope is that because the trust is included in the most recent version of the bankruptcy plan, they will receive quick approval and prevent litigation, at least until after they exit bankruptcy.