Tribune Bankruptcy Plan Faces FCC Snags

WILMINGTON, Del. (CN) - Tribune Co.'s plan to exit bankruptcy may violate FCC rules because some of the creditors backing its plan have holdings in other media companies, an expert witness testified in Bankruptcy Court.

Expert witness Mark Prak testified on Thursday that Tribune creditors JPMorgan & Chase, Angelo Gordon & Co., and Oaktree Capital Management have significant holdings in media companies that compete in some of the same markets with Tribune.

Those holdings, Prak said, would violate the Federal Communications Commission's multiple- and cross-ownership rules under Tribune's reorganization plan.

U.S. Bankruptcy Judge Kevin Carey is trying to decide between two reorganization plans, one submitted by Tribune and its backers, the other led by Aurelius Capital Management, known as the "noteholders' plan."

Lawyers for Aurelius brought in Prak as an expert witness on FCC regulations and policies; he is a lobbyist for television broadcasters.

Once Tribune emerges from bankruptcy, it will have to re-apply for a license from the FCC to operate its many newspapers and television and radio stations. Tribune must comply with multiple- and cross-ownership requirements under FCC rules and regulations.

If Tribune's reorganization plan is confirmed, JPMorgan, Angelo Gordon and Oaktree Capital will all own more than 5 percent of the new company, Prak said.

Prak said that each creditor has an "attributable interest" in other media companies, which will complicate and delay the licensing process by up to 8 months.

An "attributable interest" means their ownership in a company has reached a threshold at which they can influence policy and decision-making through a board appointment or other means, Prak said.

During direct examination, Prak listed the media holdings by the creditors and how those holdings will affect FCC cross-ownership regulations.

Besides Tribune, Angelo Gordon has two other media holdings: Freedom Communications and Next Media Group. Freedom Communications owns eight television stations and 100 newspapers, including the Orange County Register in California, a competitor of the Los Angeles Times, which is a Tribune newspaper.

Next Media Group operates radio stations in the Chicago market that would compete with Tribune's broadcasting entities, Prak said.

Angelo Gordon's holdings in both companies will "complicate and slow the process down" for FCC approval, Prak testified.

JPMorgan's holdings in Gannett Co., Freedom Communications and the Journal Register Co. would add "additional regulatory hair" on the deal, said Prak.

Although these are not "attributable interests," Prak said, Tribune will seek the same waivers as it sought after real estate tycoon Sam Zell led the heavily leveraged buyout in 2007. And that could slow down the approval process, Prak said.

Prak added that the FCC will be concerned about the competitive newspaper market in Connecticut because the Journal Register owns the New Haven Register and Tribune owns the Hartford Courant.

Finally, Oaktree Capital has an equity interest in Liberman Broadcasting, which, like Tribune, owns media outlets in Los Angeles. This will make it a "tough sell" to waive FCC rules on these holdings, Prak said.

In cross examination by Ronald Flagg of Sidley Austin, Prak acknowledged that the noteholders' reorganization plan, led by Aurelius, would face the same FCC hurdles. But Prak said: "I have not opined about the noteholders' plan."

According to court filings, the noteholders' plan will limit the amount of new Tribune common stock issued to those creditors that have significant holdings in other media businesses.

The two-week hearing ends today (Friday).

Tribune filed for bankruptcy in 2008, one year after the Zell's leveraged buyout buried the company in debt.

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