Tribune judge rejects competing plans; trustee appointment possible

By Caroline Salls

Pittsburgh, Oct. 31 - Judge Kevin J. Carey denied confirmation of both of the competing reorganization plans filed for Tribune Co.'s bankruptcy case, according to an opinion filed late Monday.

As previously reported, the company, its official committee of unsecured creditors and some of its senior lenders filed one plan (the DCL plan), and some of the holders of bonds issued before the company's 2007 leveraged buyout filed the other one.

The judge said in his ruling that he was not sure what the parties would do as a result of his ruling. However, he did say he plans to consider whether a Chapter 11 trustee should be appointed "if a viable exit strategy does not present itself with alacrity."

Carey did say the company/committee/lender plan better supports Tribune's reorganization by resolving significant claims and giving the company more certainty regarding preservation of estate value and a better foundation for revitalizing business operations.

"The DCL plan is feasible," Carey said in his opinion. "The settlement of claims in the DCL plan treats creditors fairly.

"That other creditors might benefit from extensive and costly litigation, as the noteholder plan proponents assert, is highly speculative."

Plan issues

The judge said the noteholder plan is not confirmable because

• It has not been accepted by at least one impaired class for each debtor;

• The non-consensual release of non-debtor guarantors is improper;

• The plan unfairly discriminates in its treatment of senior lenders; and

• The plan's modified implementation of Tribune's intercompany settlement agreement is not adequately explained to be considered fair or reasonable.

Meanwhile, the judge said the company/committee/lender plan is not confirmable in its current form because

• It has not been accepted by at least one impaired class for each debtor;

• The debtors' release is too broad to be fair and equitable.

Specifically, Carey said the parties granting the release should be limited to the Tribune debtors, and related persons, current employees and 401(k) shareholders should not be covered by the release;

• An exculpation provision included in the plan is too broad and must be limited to estate fiduciaries; and

• The plan unfairly applies the subordination provisions of the PHONES notes to all other parent claims and to the distribution of the proceeds of Chapter 5 causes of action by the litigation trust.

Tribune, a Chicago-based media company, filed for bankruptcy on Dec. 8, 2008. Its Chapter 11 case number is 08-13141.

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