Aurelius appeals court confirmation of Tribune Co. reorganization plan

By Jim Witters

Wilmington, Del., July 24 - Aurelius Capital Management, LP, has filed an appeal of the court's confirmation of the Tribune Co.'s fourth amended joint plan of reorganization.

Aurelius also is seeking a stay, deferring consummation of the reorganization plan until the appeal is resolved, according to documents filed July 23 with the U.S. Bankruptcy Court for the District of Delaware.

Judge Kevin J. Carey signed an entered the plan confirmation order on July 23, clearing the way for the transfer of Tribune Co. ownership to a group that includes senior creditors Oaktree Capital Management, LP, Angelo Gordon & Co., LP and JPMorgan Chase Bank.

The ownership group hopes to obtain $1.1 billion of new financing and a $300 million line of credit.

The plan confirmation also allows the Federal Communications Commission to move forward in its approval process for the transfer of Tribune's broadcast licenses to the new ownership group.

A stay would halt those actions.

Aurelius claims

Aurelius objects to a settlement included in the reorganization plan - known as the DCL plan - concerning the 2007 $12 billion leveraged buyout of Tribune Co.

The buyout occurred in two steps. Step one was a cash tender offer to repurchase 53% of the outstanding common stock at $34 a share. Step two was a Tribune merger with the newly formed Tribune Employee Stock Ownership Plan, in which all outstanding shares of Tribune's common stock were purchased and redeemed, and Tribune became wholly owned by the ESOP.

About 35,000 state cases challenging the LBO have been consolidated into one case in the U.S. District Court for the Southern District of New York.

The Aurelius arguments arose during the first confirmation hearing in the case in late 2011.

Aurelius and the indenture trustees for Tribune's senior and subordinated bond debt claimed the plan's settlement of lawsuits over the leveraged buyout was unreasonable.

If a court avoided the debt incurred at both steps of the leveraged buyout, an additional $2 billion in value would accrue for non-LBO creditors, allowing senior noteholders to receive a full recovery and subordinated noteholder "received a substantial recovery," according to the Aurelius filings.

"Given the strength of the foregoing claims, the DCL settlement - which provides the noteholders with on $369 million of settlement consideration, equivalent to only 16% to 18% of the noteholders' allowed claims - could not, as a matter of law, be deemed reasonable," the filings state.

The court erred in deciding that the $369 million settlement of $2 billion in claims was reasonable and by failing to recognize the strength of the noteholders' argument that senior "step one lenders" would be precluded from benefitting from "step two" avoidance actions ahead of non-LBO creditors, Aurelius claims.

No hearing has been scheduled on Aurelius' request for a stay.

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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