Tribune bond holders ask judge to reject company payments to buyout lenders

Tribune bond holders oppose bank payments

WILMINGTON, Del. — A group of bondholders on Friday asked the judge presiding over the Tribune Co.’s Chapter 11 case to reject payments made to lenders who financed the company’s 2007 leveraged buyout to cover their bankruptcy related fees.

Judge Kevin Carey heard two hours of arguments but did not immediately rule on the bondholders’ claims that Tribune improperly acted with JPMorgan Chase, as agent for the lenders, to hide some $25 million in payments from the court.

Carey indicated at the start of the hearing that he believes Tribune and JPMorgan could have done more to disclose the arrangement they had, a fact that both parties seemed to acknowledge, but he wasn’t certain whether they had a legal obligation to do so.

“You don’t have to convince me that there was a concerted effort here to limit notice and avoid court approval,” he told David Rosner, an attorney for the Law Debenture Trust Co. of New York.

Law Debenture has argued that the money paid by a Tribune subsidiary that is not included in the bankruptcy belongs to the parent company’s bankruptcy estate, and that the payments are unfair to other creditors.

Tribune voluntarily agreed at a December hearing to halt the payments pending further proceedings, but a JPMorgan attorney on Friday opposed an extension of that moratorium.

Tribune, which owns the Los Angeles Times, Chicago Tribune, The Baltimore Sun and other dailies, along with 23 TV stations, filed for bankruptcy protection in December 2008 because of dwindling advertising revenue and a crushing debt load of $13 billion, much of it stemming from the leveraged buyout.

Rosner noted that the debt held by the buyout lenders is unsecured. He argued that the banks were receiving favorable treatment compared to other unsecured creditors, and that the payments are going to banks against which Tribune’s bankruptcy estate may have claims.

Wilmington Trust Co., an agent for a separate group of bondholders, has filed a lawsuit claiming that the banks engaged in fraudulent conduct because they knew the debt load resulting from the 2007 leveraged buyout would leave Tribune insolvent.

“This is outrageously inappropriate for this conduct to have occurred,” said Rosner, who is seeking to have the banks return the money and be barred from accepting further payments.

Rosner said the non-debtor subsidiary making the payments, Tribune (FN) Cable Ventures, was being used solely as a vehicle to funnel payments to the banks. TCV had nothing in its bank account before Tribune’s bankruptcy filing but is now holding $90 million, in addition to the $25 million already paid, he said.

Attorneys for Tribune and JPMorgan denied any wrongdoing, saying the payments were proper and were disclosed to the U.S. trustee and Tribune’s committee of unsecured creditors, even though such disclosure was not required.

JPMorgan attorney Dennis Glazer said TCV was obligated to pay the lenders’ bankruptcy expenses because they are related to the buyout and TCV was a guarantor of the 2007 credit agreement that Tribune entered into to finance the deal.

Tribune attorney James Ducayet echoed Glazer’s comments.

“We have attempted to ensure that the debtors and their subsidiaries are honoring their contractual obligations,” he said.

But an attorney for Centerbridge Credit Advisors LLC, which hold about 37 percent of the senior notes issued by Tribune, argued that, as unsecured creditors, the banks had no legal entitlement to have their fees and expenses paid after the bankruptcy filing.

“We think this process should be stopped and stopped now,” he said.