Judge May Appoint|Trustee for Tribune

WILMINGTON, Del. (CN) - The judge in the Tribune Co. bankruptcy case said the two opposing sides are deadlocked, so he may have to appoint a Chapter 11 trustee to settle the more than 2-year-old case.

Judge Kevin Carey told lawyers for the warring creditors of Tribune at the end of a two-week confirmation hearing that appointment of the trustee would further delay Tribune's emergence from bankruptcy.

"It's not something I'm anxious to undertake, but I think I have to be more proactive in drawing us to some kind of conclusion," Carey said in court Friday.

The opposing creditor groups will continue to present arguments and witnesses in April, when the confirmation hearings wind up.

JPMorgan & Chase leads a Tribune-backed plan that includes hedge fund groups Oaktree Capital Management and Angelo Gordon & Co. JPMorgan & Chase is one of the banks that helped finance the leveraged buyout of Tribune led by real estate tycoon Sam Zell.

Hedge fund Aurelius Capital Management leads the opposing group, known as the noteholder group. Their plan includes setting up a trust that to finance litigation against the banks and others who took Tribune private in the 2007 leveraged buyout.

Tribune owns 23 TV stations and eight newspapers, including the Los Angeles Times and Chicago Tribune.

Under both plans, JPMorgan and the other lenders in the leveraged buyout would end up majority owners of the reorganized Tribune. They own most of Tribune's estimated $13 billion of debt, most of it acquired in the 2007 buyout.

In earlier bankruptcy negotiations, JPMorgan and the other senior lenders offered the noteholder group a $500 million settlement, which was rejected.

Aurelius and the other junior noteholders say the litigation trust in their plan could garner $1.9 billion in recoveries from lawsuits against the banks and others associated with the leveraged buyout.

During the two-week confirmation hearing that began on March 7, lawyers for Aurelius presented expert witnesses to back up their claim that the second step in Tribune's leveraged buyout constituted a fraudulent transfer.

They also have to prove, as expert witnesses testified, that Tribune was insolvent at the beginning of the two-step deal.

Lawyers for both sides agree that proving Tribune was insolvent at the start of the buyout would be the only way Aurelius could realize more than $1 billion from litigation.

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