Tribune to detail bankruptcy plan, but fights loom

* Plan will outline timing for Tribune exit

* Hedge funds, JPMorgan to own publisher

* Battle with tough-minded hedge fund remains

By Tom Hals

WILMINGTON, Del., Oct 22 (Reuters) - Newspaper publisher Tribune Co is expected to unveil a plan on Friday to settle billions of dollars in debts and end its two-year bankruptcy, but it still faces some potentially nasty legal fights.

The owner of the Los Angeles Times and Chicago Tribune has reached agreements with many of the banks and hedge funds that hold the company's loans and bonds.

The management team, which was put in place by real estate tycoon Sam Zell as part of his takeover, is widely expected to be replaced after recent press reports accused Chief Executive Randy Michaels of tolerating a sexist and hostile workplace.

The company has already sketched out a plan that would give ownership of the company to the holders of the company's senior loans, led by JPMorgan Chase & Co (JPM.N) and hedge funds Angelo Gordon & Co LP and Oaktree Capital Management LP.

Those $8 billion in loans funded Zell's leveraged buyout of the company in 2007. Zell has called the purchase the "deal from hell," as Tribune fell into bankruptcy less than a year after he bought it.

Billions of dollars in bonds, which do not get repaid until the company pays off the loans, were rendered nearly worthless by the bankruptcy, and those outraged investors are digging in to fight for a better deal.

Bondholders argue that the pile of loans left the company insolvent, and beneficiaries including Zell and the banks should be held responsible.

The company is now looking to bring its newspapers, 23 television stations, radio stations and other businesses out of bankruptcy as the economy is recovering and as an election year boosts ad revenue.

Creditors are expected to replace the senior management when they take over, particularly following a high-profile series of embarrassing news stories about the company's "frat house" atmosphere.

Lee Abrams, whom Michaels selected as the chief innovation officer, resigned this month after sending staff an email containing a link that some found offensive, Tribune said in an statement last week.

Former News Corp (NWSA.O) executive Peter Chernin has had one preliminary discussion about the role of chairman with creditors, but no formal proposals have been made, according to sources familiar with the talks.

LEGAL FIGHTS REMAIN

The agreements with creditors would help settle disputed debts and legal claims, but not all creditors have signed on.

Over the summer, a report from a court-appointed examiner determined the second part of Zell's two-step buyout was "somewhat likely" to be seen as an "intentional fraudulent transfer."

The examiner's report set up targets for bondholders' lawyers: $3.6 billion of loans, $4 billion of payments to selling shareholders and "substantial amounts of fees" paid to investment bankers.

An agreement reached earlier this month sought to settle some of those claims.

JPMorgan, Merrill Lynch, Merrill's parent Bank of America Corp (BAC.N) and Citigroup Inc (C.N) agreed to pay $120 million to settle claims over the fees paid to bankers.

As a result, the unsecured creditors committee -- which includes bondholders, suppliers, labor and, in an unusual twist, banks -- signed on to the company's plan.

One big hurdle remains: Aurelius Capital Management LP.

The hedge fund with a reputation for aggressive legal tactics says it is one of the largest holders of Tribune's $1.3 billion in senior bonds.

Aurelius has already indicated it wants to bring legal action against shareholders, officers, directors and advisers.

The company would normally file those lawsuits, although under the plan many of the legal actions would be brought by a litigation trust.

On Friday, unsecured creditors will argue before bankruptcy Judge Kevin Carey that they, not Tribune, should be the ones to pursue those claims, such as asserting the company's chief financial officer engaged in dishonest conduct.

Tribune's plan is not the end of negotiations. Next Friday is the deadline for competing plans from creditors, and Aurelius or other objecting parties may argue they have a better path out of bankruptcy for the company.

The case is In Re Tribune Co, U.S. Bankruptcy Court, District of Delaware, No. 08-13141. (Reporting by Tom Hals; additional reporting by Kenneth Li and Jennifer Saba in New York and Sue Zeidler in Los Angeles, editing by Gerald E. McCormick)