LBI Media plan draws objections from indenture trustee, U.S. Trustee

By Caroline Salls

Pittsburgh, March 14 – LBI Media, Inc.’s plan of reorganization drew objections Thursday from indenture trustee U.S. Bank NA and the U.S. Trustee overseeing LBI’s Chapter 11 case, according to filings with the U.S. Bankruptcy Court for the District of Delaware.

The indenture trustee said in its objection that the holding company portion of LBI’s plan “presents a discreet window into the bankruptcy gamesmanship of a plan that generally cannot be squared with the good faith requirements” of the Bankruptcy Code.

“There is only $800,000 of HoldCo cash at stake to be distributed by a holding company that does not have operations, but even this corner of the plan contains illusory promises and grossly unfair terms directed against the class 5 creditors, presumably because one of them is a prominent member of the ad hoc group of noteholders,” the indenture trustee said.

U.S. Bank said the plan sets up a division of the holding company cash for the benefit of “friendly” holders of intermediate holding company unsecured notes claims because those creditors entered into a restructuring support agreement and agreed to vote for the plan.

“Essentially the plan gives class 6 nearly twice as much on a percentage basis as the class 5 holders of HoldCo unsecured notes...by manufacturing extra claims for their benefit,” U.S. Bank said.

In addition, the notes trustee said the plan may violate the Bankruptcy Code’s absolute priority rule because it gives a company insider post-effective date consideration on account of his pre-bankruptcy equity interests although dissenting creditors are not being paid in full.

Acting Region 3 U.S. trustee Andrew R. Vara said in his objection that plan should not be confirmed because it violates the absolute priority rule, looks to improperly discharge claims and contains broad releases that are “inconsistent with the Bankruptcy Code.”

Vara also said the restructuring support agreement should be included with the plan.

The plan confirmation hearing is scheduled for March 25.

LBI Media is a Burbank, Calif., owner and operator of Spanish-language radio and television stations. The company filed bankruptcy on Nov. 21 under Chapter 11 case number 18-12655.

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