Tribune noteholders lose latest round in appeal of plan confirmation

By Caroline Salls

Pittsburgh, Aug. 26 – Tribune Co. senior notes trustee Delaware Trust Co. lost its appeal of the U.S. Bankruptcy Court for the District of Delaware order confirming the company’s Chapter 11 plan, according to an opinion filed Wednesday by the U.S. Court of Appeals for the Third Circuit.

The Third Circuit court said the senior noteholders argued that Tribune’s plan of reorganization “misapplies their rights under the Bankruptcy Code by not according them the full benefit of their subordination agreements with other Tribune creditors.”

“The bankruptcy court confirmed the plan over the senior noteholders’ dissenting votes,” Wednesday’s opinion said. “In bankruptcy parlance, they were ‘crammed down.’”

As a result of the cram-down provision, the Third Circuit court said when the class of senior noteholders voted to reject the plan, but other classes voted to accept it, it was confirmed and all classes were bound by the ruling.

In the appeal of the U.S. District Court for the District of Delaware’s ruling affirming confirmation, the Third Circuit court said the noteholders claimed that they were entitled to “full recovery from the strict enforcement of the subordination agreements, and, in any event, the plan’s proposed distributions were unfairly discriminatory in favor of other unsecured class that shared in the subordinated sums.”

The circuit court said it agreed with both lower courts’ rulings that the text of the Bankruptcy Code supplants strict enforcement of subordination agreements and instead, in the case of cramdown plans, compares similarly situated creditors through a more flexible unfair discrimination test.

Tribune is a Chicago-based media company.

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