UPDATE 1-Funds seek repayment of Tribune debt over Cubs sale

(Adds background, updates bond price)

NEW YORK, June 7 (Reuters) - Hedge funds want immediate repayment of a $1.26 billion Tribune Co. TRB.N bond issue, contending Sam Zell's plans to sell the Chicago Cubs after he acquires the publisher amounts to a default.

Three unidentified funds, which own 55 percent of the series, sent default notices to Tribune in April, saying a sale of the Cubs baseball team would violate the bond's convenants, according to a June 1 filing with the Securities and Exchange Commission. If a default were declared and upheld, holders of the 2 percent convertible issue due May 2029 would be entitled to be repaid immediately at full value.

Tribune is contesting the default, it said in the filing.

Should the funds prevail in their bid, they could capture a fast profit.

The bonds, which are listed on the New York Stock Exchange under the ticker "TXA" (TXA.N: Quote, Profile, Research), last traded at $68.03, or about 43 percent of their redemption value of at least $157 each. That indicates a market value of the amount held by the three funds of about $298 million.

The bonds had earlier reached a high in composite trading of $68.75, a three-month high.

An affirmed default would trigger repayment at redemption value, which would ring up a $395 million windfall for the three holders. The face value of their holdings totals about $693 million at Thursday's latest quoted price.

Tribune, publisher of the Chicago Tribune and Los Angeles Times newspapers, agreed earlier this year to go private in an $8.2 billion transaction backed by Zell, the Chicago real-estate magnate. After the 2007 Major League Baseball season, Zell plans to sell the Cubs and some other assets.