Pappas Telecasting lenders lose faith in CEO, agent seeks appointment of Chapter 11 trustee

By Caroline Salls

Pittsburgh, May 21 - Pappas Telecasting Inc. pre-bankruptcy lender agent Fortress Credit Corp. has requested emergency appointment of a Chapter 11 trustee to oversee the company's bankruptcy case, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.

According to the motion, a Chapter 11 trustee should be appointed for Pappas' case "because Harry J. Pappas, who dominates and controls the debtors as controlling member, chairman of the board and chief executive officer, is using these proceedings to further his personal agenda."

Fortress said Pappas is violating his fiduciary duties to the company, its creditors and the court.

The lender agent said appointment of a trustee will ensure that the company can dispose of its assets in a way that maximizes their value for all creditors.

In addition, Fortress said Pappas Telecasting's lenders will not agree to the company's use of cash collateral "so long as Mr. Pappas is left with unfettered control."

Without the use of cash collateral, Fortress said the company would not be able to continue operating as a going concern.

However, Fortress said the lenders "would be receptive to negotiating a long-term cash collateral agreement with a Chapter 11 trustee to facilitate a sale process."

The lender agent said Pappas has demonstrated that as long as he continues to operate the company, he will never allow any sale or restructuring "that does not satisfy his personal financial interests and personal guaranty obligations to the lenders."

"The lenders, who hold the overwhelming majority of creditor interest in these cases, have lost confidence in Mr. Pappas," Fortress said in the motion.

Pappas Telecasting, a private broadcasting company based in Fresno, Calif., filed for bankruptcy on May 10. Its Chapter 11 case number is 08-10916.

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