Tribune Bankruptcy Heating Up|as Battle Looms With Creditors

WILMINGTON, Del. (CN) - Deadlines were pushed back again in the Tribune Co.'s bankruptcy case, as U.S. Bankruptcy Court Judge Kevin J. Carey suspended a voting deadline set for Friday on the company's reorganization plan. Tribune sought more time, saying it is in "vigorous negotiations" with creditors.

Judge Carey already had extended an independent examiner's deadline to submit a report on the 2007 leveraged buyout of Tribune, orchestrated by Sam Zell. The deal was financed by the same banks that are seeking to own the company when it emerges from bankruptcy.

But that is all in limbo now that examiner Kenneth Klee's 1,000-plus page report has been submitted. Klee's report gives new details on the $8.2 billion deal that saddled the company with overwhelming debt, leading to its collapse a year later.

The report paints a portrait of upper management intent on pushing through the deal whatever the cost.

With Zell putting up only $315 million of his own money, the rest of the cash was secured from major banks, including JPMorgan Chase. Getting the deal through hinged upon a solvency opinion by Valuation Research Corp., a Los Angeles company, and an assurance by Morgan Stanley that Tribune would be able to refinance its $13 billion debt in 2014.

The examiner's report states that "one or more senior financial officers" at Tribune could not get that assurance from Morgan Stanley, but nevertheless communicated to the banks an impression that they had "Morgan Stanley's blessing."

Klee wrote that "evidence adduced shows that Tribune, acting through one or more of its senior financial management members, was not honest in this matter and that these circumstances directly related to the satisfaction of the closing conditions to Step Two."

Another advisory firm, Houlihan and Lokey, declined to take on the job, saying it believed the transaction would saddle Tribune with too much debt.

Although Klee's report does not name the "senior financial management members," or try to assign individual culpability, it often mentions Senior Vice President of Finance Don Grenesko, and Chandler Bigelow, former treasurer and now CFO of Tribune.

The report characterizes their role in the second part of the merger as "push(ing) the envelope beyond what Morgan Stanley had said to them, in order to get past the final major hurdle standing in the way of the Step Two Closing,"

Concluding the report, Klee said that a court would be "somewhat likely" to find that the second part of the buyout "constituted intentional fraudulent transfers."

Tribune said in a statement that it disagreed with the examiner's "characterization of the company's dealings with Morgan Stanley."

The examiner's investigation did not find wrongful conduct by Zell or his company, EGI-TRB, which is seeking recovery of some or all of the $315 million invested in the 2007 deal.

Zell claims that his company should be repaid if lower-priority creditors get anything in the reorganization plan.

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