In re: Tribune Media Co.

Zell orchestrated a leveraged buy-out (LBO) of the Tribune Company, which published the Chicago Tribune and the Los Angeles Times. In an LBO, a purchaser acquires an entity using debt secured by assets of the acquired entity. The transaction saddled the company with an additional $8 billion of debt. Tribune subsidiaries guaranteed the LBO debt. The holders of pre-LBO debt had recourse only against Tribune, not against the subsidiaries. Tribune sought Chapter 11 bankruptcy protection in 2008. Aurelius, a hedge fund specializing in distressed debt, bought $2 billion of the pre-LBO debt and participated in the bankruptcy. The Committee of Unsecured Creditors obtained permission to pursue claims of breach of fiduciary duty and fraudulent conveyance against the LBO lenders, directors and officers of old Tribune, and Zell. The Bankruptcy Court discussed possible plans at length, concluding that it was uncertain that litigation would result in full avoidance of the LBO, the only result that could result in greater recovery than settlement. A plan was confirmed over Aurelius’s objection. A requested stay was conditioned on Aurelius posting a $1.5 billion bond. Aurelius was unsuccessful in obtaining expedited review. The plan was consummated. Appeals were dismissed as equitably moot. The Third Circuit agreed that Aurelius’s appeal, which sought to undo the crucial component of the consummated plan, was moot, but reversed with respect to trustees representing pre-LBO debt, who sought disgorgement from other creditors of $30 million; their requested relief would neither jeopardize the $7.5 billion plan of reorganization nor harm third parties who have justifiably relied on plan confirmation. View "In re: Tribune Media Co." on Justia Law