* Creditors say Chapter 11 plan shortchanges them
* Tribune says expected appeals, believes they will fail
* Bankruptcy stemmed from Sam Zell's $8.2 billion LBO
By Jonathan Stempel
July 24 Bondholders have appealed a federal judge's decision to approve Tribune Co's bankruptcy reorganization plan, which would give ownership of the media company to its senior lenders.
The appeals were filed with the U.S. Bankruptcy Court in Wilmington, Delaware, after U.S. Bankruptcy Judge Kevin Carey on Monday signed off on the Chapter 11 plan for the publisher of the Chicago Tribune, Los Angeles Times and Baltimore Sun.
A 2007 leveraged buyout of Tribune by billionaire real estate investor Sam Zell had left the Chicago-based company with about $13 billion of debt.
Tribune filed for protection from creditors on Dec. 8, 2008. Its reorganization plan would turn over ownership to JPMorgan Chase & Co, the hedge fund Oaktree Capital Management LP and Angelo, Gordon & Co, which invests in distressed companies.
Aurelius Capital Management LP, which has led opposition to Tribune's reorganization, contended that the company's plan and a related legal settlement shortchange junior bondholders such as itself by forcing them to accept just $369 million to cover between $2 billion and $2.3 billion of legitimate claims.
It said this payout, equal to between 16 cents and 18 cents on the dollar, falls "far below the lowest rung in the range of reasonableness," and ignores the strength of claims it still has in litigation over the $8.2 billion buyout.
A second appeal was filed by bond trustees Deutsche Bank Trust Co and Law Debenture Trust Co of New York, which said Tribune's plan undercompensates senior bondholders relative to other, similarly situated creditors.
Aurelius and the trustees also asked Carey to put the bankruptcy case on hold while they appeal.
In a memo to employees, Tribune Chief Executive Eddy Hartenstein said the company expected the appeals, believes they will be unsuccessful, and does not expect them to interfere with efforts to emerge from Chapter 11 "as soon as possible."
Appeals of Delaware bankruptcy court decisions normally go to the federal district court in Wilmington. The trustees are seeking to skip this step and have their case heard by the 3rd U.S. Circuit Court of Appeals in Philadelphia.
Carey's approval of the bankruptcy plan cleared the way for Tribune to seek Federal Communications Commission approval to transfer its broadcast licenses to new owners.
FCC approval is needed before Tribune can emerge from Chapter 11. Tribune has said approval may take several months, but Aurelius said the time frame might be "considerably shorter," warranting a halt to the bankruptcy case.
Among Tribune's other holdings are the Orlando Sentinel and Sun Sentinel in Florida, the Hartford Courant in Connecticut, and 23 television stations including Chicago's WGN.
The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.