Lenders battle in court over billions of debt after US newspaper group failure

The future of two of the most prestigious newspapers in the US is being debated in a Delaware bankruptcy court this week, but there is still no sign of an end to the legal wrangling over the controversial leveraged buy-out deal that landed them there over two years ago.

The December 2008 bankruptcy of the Tribune Group, owner of the Chicago Tribune and the Los Angeles Times, has spawned recriminations among staff, executives and a slew of lenders who are fighting over how best to restructure the ailing business.

The bankruptcy judge Kevin Carey yesterday began hearings on two competing restructuring plans: one backed by the Tribune Group and the financiers of the 2007 buyout led by the property magnate Sam Zell; the other proposed by the holders of older debts, who say that Mr Zell and his coterie are responsible for the company's insolvency and should surrender much more of their financial interest in Tribune's future.

Mr Zell, a Chicago billionaire nicknamed "the Gravedancer" for his habit of buying apparently moribund assets and turning them around, won control of the 160-year-old Tribune Group in April 2007. This was at the peak of the bubble in credit markets and, bankrolled by a consortium of lenders led by JPMorgan Chase, he loaded the company up with $13bn of debt, a sum that raised eyebrows even then. Barely a year and a half later, as a deep recession exacerbated declines in newspaper advertising revenues, the company filed for Chapter 11 bankruptcy protection.

Tribune's board – over the objections of Mr Zell, who remains chairman – is supporting a financial restructuring that would give JPMorgan and other holders of the buyout debt a combination of new loans and equity in a post-bankruptcy company. It would also require holders of earlier-dated debt to drop their lawsuit against the buyout lenders, which alleges that they were responsible for the insolvency.

The holders of that earlier debt are led by Aurelius Capital Management and Wilmington Trust, who say they are owed $2.5bn and would lose the majority of that under the Tribune plan.

Last summer, a court-appointed examiner determined that the 2007 buyout involved "dishonesty and lack of candour" on the part of Tribune's then management, and that the deal rendered the media group insolvent from the moment the two-step transaction closed. The examiner said it was likely Aurelius would win its $1.6bn lawsuit against JPMorgan and others.

Even if Judge Carey backs the official Tribune-JPMorgan proposals, the legal battle over the company is set to continue. Aurelius is also suing Mr Zell personally, and other members of the past and current executive teams, alleging misconduct during the buyout.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'