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Judge Denies Confirmation of Competing Reorganization Plans in Tribune Company's Bankruptcy



Wilmington, Del., bankruptcy judge Kevin Carey denied confirmation of two competing reorganization plans in the bankruptcy case of Tribune Company. In doing so, Judge Carey teetered dangerously close to placing the United States' largest media company in a trustee-supervised bankruptcy case. Judge Carey likened the two competing creditor groups proposing alternative bankruptcy plans to feuding animals in a childhood parable. The Wilmington-based judge was disturbed by the ready willingness of both creditor bodies to cause harm upon others, even at a risk and peril to themselves. Judge Carey felt so passionate about his decision and the rationale for same that he authored a 125-page opinion.

Competing Bankruptcy Reorganization Plans Proposed by Tribune Creditor Groups

Bankruptcy insiders believe Judge Carey gave slight advantage to the proposed plan from JPMorgan Chase & Co. (JPM) because he approved the core of its plan for reorganization. The JPM proposed plan is essentially a settlement of the threatened litigation emerging from a 2007 buyout of Tribune Company. The two competing creditor-proposed reorganization plans differed on a few key points. One of the main areas of divergence was whether the proposed plans settled or prosecuted litigation against several lenders, such as JPM. Those very lenders funded the buyout of the Tribune Company in 2007 for $8.2 billion.

Bankruptcy Judge's Beef With the Two Competing Proposed Plans

Judge Carey enumerated several legal and technical issues in his lengthy written opinion that analyzed both competing proposed plans in depth. One of the bankruptcy judge's particular areas of concern was how each creditor body released at least some potential bankruptcy claims. Judge Carey felt as though the proposed claim release provisions were overly broad and vague.

The judge considered the proposed plan of hedge fund Aurelius Capital Management LP as one that unfairly discriminated in its treatment of creditors such as senior lenders. Judge Carey also disliked the Aurelius proposed plan's release of non-debtor guarantor parties. To him, the guarantor release was flatly improper.

Potential Bankruptcy Trustee Appointment in Tribune Company Case

If both proposed bankruptcy reorganization plans are amended adequately to resolve Judge Carey's concerns, the judge indicated a likely preference for the JPM plan proposal. The bankruptcy judge's reasoning for siding with the JPM plan was because of the proposed settlement of the buyout litigation and its fair treatment of Tribune Company creditors. Still, unless Tribune Company can quickly identify an exit strategy from bankruptcy in the meantime, Judge Carey indicated that he will make a trustee appointment. The purpose of the bankruptcy trustee appointment is to provide a measure of oversight for and during the bankruptcy case proceeding.