Tribune Co. bankruptcy plan faces new hurdles

Reporting from Chicago — Objections to Tribune Co.’s Chapter 11 disclosure statement flooded into the Delaware Bankruptcy Court on Thursday, complicating the company’s chances of winning a judge’s approval of the document at a key hearing May 20.The filings included a new objection from a previously silent group of senior creditors angry over its treatment in the company’s plan of reorganization, further splintering the all-important senior creditor class in the case.

The U.S. Labor Department also weighed in, saying the document does not give ample disclosure to the agency’s ongoing investigation into whether Tribune Co.’s contested 2007 leveraged buyout violated federal labor laws.

Legal experts said it was difficult to tell at this point whether the objections could disrupt the timing of Tribune Co.’s exit from Bankruptcy Court, which is now scheduled for early August.

But at the least, Tribune Co. lawyers have their work cut out for them to address all the concerns in a new draft of the disclosure statement, which U.S. Bankruptcy Judge Kevin Carey will consider at next Thursday’s hearing.

“Obviously we have a lot of problems with it,” said White & Case attorney Thomas Lauria, who represents the newly dissident creditor group.

Most of Thursday’s objections said Tribune Co. — which owns the Los Angeles Times, Chicago Tribune and other media outlets — didn’t provide enough information about how the settlement plan was reached or how it takes into account charges brought by junior creditors that the 2007 leverage buyout was an example of “fraudulent conveyance,” meaning the debt-heavy deal rendered the company insolvent from the start. Objectors wanted to see more disclosure of those charges.

Before Thursday’s objection deadline, at least one key group of senior creditors led by distressed investment hedge fund Oaktree Capital had publicly objected to the plan.

Meanwhile, the Labor Department argued in a filing that the disclosure statement must provide more information on the potential risks for creditors stemming from its months-long investigation into whether the leveraged buyout’s use of a complex structure reliant on an employee stock ownership plan violated the Employee Retirement Income Security Act of 1974.

The agency pointed out that the federal district court in Chicago recently denied Tribune Co.’s motion to dismiss a class action suit against fiduciaries to the employee stock ownership plan, including Tribune Co. Chairman Sam Zell, charging that they had breached their fiduciary duty by engaging in “prohibited transactions.” It also contested a provision in Tribune Co.’s settlement plan that would release Zell and others from any claims arising from Employee Retirement Income Security Act violations.

In a statement, Tribune Co. said it had no doubt it could push through its plan and avoid more litigation.

“The Plan of Reorganization we have filed with the Bankruptcy Court is fair to our creditors and in the best interests of all parties involved with our Chapter 11 process,” the company said. “We remain confident in our ability to get the plan approved by our creditors and confirmed by the Bankruptcy Court.”

mdoneal@tribune.com