Tribune Trustees Eye $30M Disgorgement

PHILADELPHIA (CN) - It would not jeopardize Tribune Media's $7.5 billion reorganization to have the bankrupt firm's creditors disgorge $30 million, the Third Circuit ruled.

With the circulation of Tribune titles like the Chicago Tribune and the Los Angeles Times in decline, Chicago billionaire Sam Zell had organized the leverage buyout by which Wall Street banks purchased Tribune in 2007.

Tribune's circulation numbers continued to circle the drain, however, and the buyout saddled the company with an additional $8 billion in debt on top of the pre-existing $5 billion figure.

Tribune filed for bankruptcy in December 2008, and Aurelius Capital Management purchased $2 billion of the company's debt from before the leverage, or pre-LBO, buyout sometime later.

The bankruptcy court affirmed the reorganization plan championed by Tribune in 2012, over objections from Aurelius, and a federal judge dismissed the creditor's appeal last year.

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.

Though the Third Circuit agreed Tuesday that Aurelius' claim is moot, it reversed with respect to an appeal by two trustees, Law Debenture Trust Co. of New York and Deutsche Bank Trust Co. Americas.

"They seek disgorgement from other creditors of $30 million that the trustees believe they are contractually entitled to receive," the decision states. "As the relief the trustees request would neither jeopardize the $7.5 billion plan of reorganization nor harm third parties who have justifiably relied on plan confirmation, their appeal is not equitably moot."

Aurelius meanwhile seeks to unravel the settlement, ensuring harm for other creditors and repeating the protracted and tedious bankruptcy process, the court found.

"Revoking the settlement would circumvent the bankruptcy process and give Aurelius by judicial fiat what it could not achieve by consensus within Chapter 11 proceedings or, we can't help but add, if it had put up a bond," Judge Thomas Ambro wrote for a three-person panel.

Though Tribune Media is still a major broadcasting operation, it spun off its newspaper business in 2014.

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