Los Angeles-based Oaktree, the largest shareholder, with about 22 percent of the equity, appointed two of seven board members. Both Angelo Gordon and JPMorgan have roughly a 9 percent stake and appointed one seat each. The three jointly appointed two more board members, with the final seat occupied by the chief executive.
Among the outgoing board members is Zell, whose deal was seen at the time as an alternative to the squabbles within Tribune Co. that threatened to break apart the then-publicly traded company. But the Great Recession and plummeting advertising revenues across all media, especially the struggling newspaper industry, made the company’s resulting $13 billion debt load untenable.
Tribune Co. filed for Chapter 11 bankruptcy protection in December 2008. Zell blamed a “perfect storm” of industry and economic forces. But the bankruptcy case turned on charges leveled by junior creditors that saddling the company with such a debt burden left it insolvent from the outset.
Led by an aggressive distressed debt fund called Aurelius Capital Management, the junior creditors pressed litigation that stretched out the case for three and a half years in a Delaware court before U.S. Bankruptcy Judge Kevin Carey confirmed the reorganization plan in July. An emergency appeal to stay that decision was dismissed by the 3rd U.S. Circuit Court of Appeals in September. In November, the Federal Communications Commission signed off on waivers needed to transfer Tribune Co.’s broadcast properties to the new ownership, clearing the last hurdle to its emergence from Chapter 11.
“Usually, bankruptcy cases like this take much less time and cost less money,” said Douglas Baird, a bankruptcy expert and law professor at the University of Chicago.
Baird said legal fees for most large corporate bankruptcies run 3 to 4 percent of the company’s total worth. The Tribune Co. case, which will likely cost the company more than $500 million in legal and other professional fees, was more than twice that percentage, due to both the extended litigation and the company’s declining valuation.
Before cash distributions and new financing, a 2012 analysis by financial adviser Lazard valued the broadcasting assets, including the TV stations, WGN-AM 720, CLTV and national cable channel WGN America, at $2.85 billion. Other strategic assets, such as online job site CareerBuilder and cable channel Food Network, are worth $2.26 billion.
Tribune Co.’s newspaper holdings, including the Tribune, Los Angeles Times and six other daily publications, have withered to $623 million in total value, according to Lazard. In 2006, entertainment mogul David Geffen made a $2 billion cash offer for the Los Angeles Times.
Geffen’s offer came after a rift between California’s Chandler family, longtime owners of the Los Angeles Times, and Tribune Co. management put the company in play. The Chandlers had become large shareholders in Tribune Co. through its 2000 acquisition of Times Mirror Co. for $8.3 billion. Concerned about Tribune Co.’s slumping stock price, in 2006 they began pushing to break up the company or sell it. Zell’s deal to take the company private was announced in April 2007.
Despite the sharp decline in advertising revenue since 2007, Tribune Co. remained profitable during its long stay in Chapter 11, amassing a $2.54 billion cash balance as of Nov. 18. Much of that will be distributed to creditors beginning Monday.
Oaktree and Angelo Gordon, investment firms that specialize in distressed debt, purchased their stakes in Tribune Co. at a discount on the open market; JPMorgan was lead lender in the buyout. They and the rest of the senior creditor group hope to profit from the eventual sale of the company’s assets. They will also immediately take nearly $3 billion in cash out of their new company, executives said.
That number includes about $1.85 billion from the pool of accumulated cash plus the cash proceeds from a new $1.1 billion term loan secured by Tribune Co. as part of the reorganization plan. Aurelius will split about $411 million with its fellow junior bondholders.
Tribune Co. will keep $325 million of the cash for working capital and has also secured a $300 million loan to fund ongoing operations. JPMorgan is among the committed lenders for that loan, as well as the $1.1 billion term loan.
As part of emergence, Tribune Co. will issue about 100 million shares of new Class A common stock, tradable through a quasi-public market, with an implied value of about $45 per share.
The junior creditors haven’t given up the fight for additional recovery on their more than $2 billion in claims. As part of the plan, they will participate in a litigation trust set up to pursue outstanding claims against a variety of defendants, including Zell, Tribune Co.’s former officers and directors, and the company’s advisers on the Zell deal.
Zell and other defendants have fought the claims, arguing they are baseless.
The junior creditors also won the right from the bankruptcy court to pursue litigation against 35,000 former Tribune Co. shareholders in dozens of state courts around the country. Those cases, which have been consolidated before a federal district judge in New York, are awaiting a key decision on jurisdiction before they can proceed.
Despite the prodigious cost and length of the bankruptcy, Baird said it should be judged on the outcome — the successful reorganization of Tribune Co. Baird made reference to Eastern Airlines, which filed for bankruptcy in 1989, and was grounded permanently two years later while still operating under Chapter 11.
“You have these pathological cases where firms go into bankruptcy and never emerge and ultimately fall apart,” Baird said. “Tribune has been expensive, but the most important thing is that the company survived.”
Tribune reporter Michael Oneal and Baltimore Sun staff contributed.