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.