Tribune Creditor Lobbies for Payback Priority

     PHILADELPHIA (CN) – A jilted lender to Tribune Media asked the Third Circuit to give it priority in debt payments, arguing the current structure of Tribune’s repayments provides for a windfall for Wall Street banks.
     Aurelius Capital Management, one of the lenders to Tribune whose claims were reduced to pennies on the dollar after the media giant declared bankruptcy in 2012, told judges that the missteps in the bankruptcy structure were wrongs easily righted: All the court needs to do is give Aurelius and the other lenders, like Deutsche Bank, priority in their loans ahead of JPMorgan Chase and other banks involved in the 2007 leveraged buyout of Tribune – which saddled the company billions in debt.
     A bankruptcy judge declined to grand Aurelius’ request last year, saying that changing the order of payments would scramble an agreement too complex to be tinkered with.
     But Roy Englert, Jr., attorney for Aurelius, told a Third Circuit panel on Tuesday that giving Aurelius priority “simply involves changing the waterfall” of payment without needing to start the years-long bankruptcy agreement over from scratch.
     The settlement provided Aurelius and fellow debtors only $369 million on $2.24 billion in claims against Tribune. Meanwhile, Tribune was ordered to pay banks involved in the leveraged buyout $8.87 billion, a figure close to their full claims.
     Englert disputed U.S. Bankruptcy Judge Kevin Carey’s invocation of “equitable mootness,” a doctrine increasingly applied in bankruptcy that does not allow a complicated bankruptcy plan to be reorganized after the plan has been finalized.
     “Our position is that even post-consummation, there are plenty of remedies that don’t scramble the plan,” Englert said, adding that the remedy requires little more than reorganizing “different pieces of the pie.”
     Carey had given Aurelius the opportunity to stay the implementation of the plan if Aurelius posted a $1.5 billion bond, but the company balked at the cost. Circuit Judge Thomas Ambro asked if not paying the bond was simply a bad business decision that Aurelius now regrets.
     In an oral argument unusually uninterrupted by Ambro, Tribune attorney Jim Johnston said, “This is one of those rare cases where chaos, literal chaos, would ensue if appellants achieved the relief they pursue.”
     Johnson argued that undoing a meticulous and protracted bankruptcy settlement, and “senior lenders that paid hundreds of millions of dollars in litigation to settle the claim once and for all and be free from litigation” would find themselves back in a courtroom.
     Wall Street banks purchased Tribune in 2007, in a leveraged buyout organized by Chicago billionaire Sam Zell at a time when circulation of its newspapers – including the Chicago Tribune and Los Angeles Times – was in decline.
     The company filed for bankruptcy in 2010, a victim of both the failure to reverse circulation declines and the additional debt from the buyout.

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