Tribune Co. may finally be leaving Bankruptcy Court

It took 3 1/2 years and more than $400 million in fees to lawyers and other professionals, but it appears that Tribune Co. may finally be on the verge of winning approval for a plan to emerge from bankruptcy.

At a hearing Thursday in Wilmington, Del., U.S. BankruptcyJudge Kevin J. Careywill consider a plan by the Chicago media company and its creditors to exit bankruptcy. Tribune owns the Los Angeles Times, KTLA-TV Channel 5, the Chicago Tribune and other media properties.

But unlike a year ago when a group of junior bondholders led by New York hedge fund Aurelius Capital Management waged all-out war against a restructuring plan proposed by the company and its senior creditors, this plan has drawn little new opposition, and most observers expect Carey to approve it.

Given the complexity and contentiousness of the case, legal experts said the judge will probably take several weeks to write a formal opinion. But approval would pave the way for Tribune to exit Bankruptcy Court as early as the fourth quarter, assuming the company and its lawyers can overcome several key obstacles that still lie in its path.

Chief among them is that Tribune has to win approval from the Federal Communications Commission to transfer the company’s broadcasting licenses to its soon-to-be new owners, a group of banks and hedge funds led by Los Angeles distressed-debt investor Oaktree Capital Management; Angelo, Gordon & Co.; and JPMorgan Chase & Co.

Tribune lawyers have been working with FCC staff to answer questions related to the transfer application. But the agency’s commissioners still have to rule on the matter, and that process can’t officially start until Carey confirms the bankruptcy plan.

Tribune filed for bankruptcy Dec. 8, 2008, a year after its purchase by Chicago real estate investor Sam Zell. Banks lent Zell more than $11 billion to acquire Tribune, but court documents now value the company at about $7 billion.

If the plan is confirmed and the FCC approves the transfers, the senior creditors will emerge owning more than 95% of the new company’s equity.

Oaktree will be the largest individual shareholder, with about 22% of the equity, and will have the right to appoint two of seven board members. Angelo, Gordon will have 9%, and JPMorgan 8%, and each will control one board seat. All three investors will appoint two board members, and a final seat will be reserved for the chief executive.

People close to the situation say that the senior group has been looking for new board members and CEO candidates but that they are awaiting a final decision from Carey and more clarity about the date of emergence before making any moves. It is likely a new board won’t be announced until the company is ready to exit Bankruptcy Court, said these people, who were not authorized to speak publicly.

The big question: What will Oaktree and the others do to maximize the value of their investment? Experts have widely predicted the new owners will split up Tribune, but how and when are hard to predict. In Los Angeles, billionaire Eli Broad has expressed renewed interest in forming a group of civic-minded investors to buy the Los Angeles Times.

Tribune is now valued primarily for its 23 television stations and a slate of equity investments in other businesses, including the Food Network. Before the Zell deal, Tribune entertained offers topping $2 billion for the Los Angeles Times alone, but today, according to the company’s own valuation analysis, the entire publishing group of eight newspapers, including The Times and the flagship Chicago Tribune, is worth about $623 million.

By contrast, the TV stations are valued at $2.9 billion.