| WILMINGTON, Del.
WILMINGTON, Del. Feb 12 Tribune Co's senior
creditors warned that allowing bondholders to sue over the
legitimacy of $10 billion of the bankrupt company's debt would
touch off "World War III" and upend settlement talks, according to
A group of hedge funds that holds $4.6 billion in senior
secured claims on the bankrupt media company also said in court
papers that if claims about the legitimacy of the debt exist,
they should be pursued by Tribune and not unsecured creditors.
"The committee seeks authorization to initiate the
bankruptcy equivalent of World War III -- with the apparent
objective of avoiding upwards of $10 billion of debt -- without
a single statement about why commencement of litigation at this
critical junction in the reorganization is necessary or
appropriate," said the group in a court document.
The dispute stems from a request by the official committee
of unsecured creditors to begin pursuing claims relating to the
debt that financed the 2007 leveraged buyout of Tribune.
Real estate developer Sam Zell took control of Tribune in
2007 through the leveraged buyout and the company, which owns
the Chicago Tribune and Los Angeles Times, filed for bankruptcy
The committee said there is evidence that $10 billion of
LBO debt was fraudulently incurred and therefore holders of the
debt should have their claims disallowed or subordinated below
the claims of bondholders. The committee also wants to recover
fees and interest paid on the debt.
The dispute over the leveraged buyout debt is the final
major roadblock to the company's emergence from bankruptcy. For
the unsecured creditors, subordinating senior debt may be their
best avenue for a recovery.
Creditors often begin investigations of fraudulently
incurred debt and arrive at a settlement that may improve the
recovery for unsecured claimants, as was recently the case in
the bankruptcy of Magna Entertainment Corp.
The group of senior secured creditors in the Tribune case
have countered the push to pursue fraudulent debt claims with a
proposal to bring Tribune's newspapers and television stations out
of bankruptcy, largely under their control.
They proposed leaving the parent in Chapter 11 until the
dispute over the leveraged buyout is settled. The judge
rejected that proposal.
JPMorgan Chase & Co (JPM.N), which holds senior claims against
Tribune, requested the court deny the committee's request to begin
litigating its claims regarding the leveraged buyout debt.
The bank said negotiations should be given more time "rather
than allowing the process to be overtaken by a rash of competing
motions by various parties jockeying for position."
A hearing on the unsecured creditors' request to begin
litigating the status of the leveraged buyout debt is scheduled
for Feb. 18.
The case is In re Tribune Co, U.S. Bankruptcy Court,
District of Delaware, No. 08-13141.
(Reporting by Tom Hals; Editing by Phil Berlowitz)