* Trial pits hedge fund against company plan
* Court must choose whether settling or suing is best
By Tom Hals
WILMINGTON, Del., March 7 A judge warned he
might reject both proposals for the bankrupt Tribune Co media
company as a two-week trial began on Monday into the rival
"Both (sides) may be so effective in your objections that
you might convince me that neither (plan) should be confirmed,"
said Delaware's chief federal bankruptcy judge, Kevin Carey.
The company backs a plan that would settle legal claims
among the parties to the bankruptcy. Lenders would end up
owning the company and bondholders would receive about 34 cents
on the dollar, with more possible.
A group of bondholders led by hedge fund Aurelius Capital
Management wants to establish a trust that would pursue legal
claims against banks, real estate developer Sam Zell, and
shareholders who sold into the buyout and others.
Carey might have been trying to nudge the two sides to work
things out among themselves rather than slug it out in court,
but there were no immediate signs of compromise.
Bruce Bennett, of the Dewey & LeBoeuf law firm, accused
Aurelius of holding the owner of the Los Angeles Times, Chicago
Tribune and more than 20 television stations in bankruptcy to
extract a bigger settlement.
"The people holding people hostage are sitting on that side
of the room," said Bennett, indicating Aurelius.
Both approaches anticipate the operations would emerge from
bankruptcy relatively quickly from Chapter 11.
The plans differ in how to treat the sprawling legal claims
stemming from company's 2007 leverage buyout, which was
followed in less than a year by bankruptcy.
The bankruptcy wiped out the value of the company's bonds
that were issued long before the Zell-led buyout.
Under plan backed by the company, banks that arranged more
than $8 billion of leveraged buyout debt will contribute the
bulk of the $600 million that will go to bondholders and other
unsecured creditors to compensate for their losses from the
The company would emerge under the control of lenders
JPMorgan Chase & Co (JPM.N) and hedge funds Angelo Gordon & Co
and Oaktree Capital Management.
The company's "plan provides certainty through a reasonable
settlement," said James Sottile of Zuckerman Spaeder, arguing
for the Tribune plan.
But the group of bondholders led by Aurelius have dug in
their heels against what they argue is a cheap, unreasonable
"We think it's a pretty lousy settlement," said David
Zensky of Akin Gump Strauss Hauer & Feld, which represents
The company argues its plan works out to about 34 cents on
the dollar for bondholders, with more possible.
If Aurelius is able to win on some of its biggest legal
claims, it bondholders could be paid in full for their $2.5
billion in claims.
The control of the company would not be immediately settled
under the noteholder plan.
The case is In re Tribune Co, U.S. Bankruptcy Court,
District of Delaware, No 08-13141.
(Reporting by Tom Hals; Editing by Tim Dobbyn)