Tribune Co. reaches settlement with 2 large creditors

After a two-day, court-appointed mediation in its bankruptcy case, Tribune Co. and two of its biggest creditors reached a proposed settlement Tuesday over how to reorganize the Chicago-based media company.

But the pact, struck with hedge funds Angelo, Gordon & Co. and Oaktree Capital Management, failed to win the support of a number of other key constituents in the case, meaning the mediation process has yet to forge a solution to a Bankruptcy Court battle that has already gone on for almost 22 months.

U.S. Bankruptcy Judge Kevin Gross, the court-appointed mediator, acknowledged in a court filing Tuesday that the mediation was incomplete but said he did not consider it closed. He expressed his confidence that the new plan “will lead to additional constructive discussions between and among the debtors and other parties.”

Tribune Chief Restructuring Officer Don Liebentritt also sounded a note of optimism. “We remain confident that additional settlements will be reached,” he said in a company statement.

Significant disagreements remain, however, between the new Tribune alliance and a variety of holdouts, including senior lender JPMorgan Chase, the Official Committee of Unsecured Creditors and junior note holder Aurelius Capital Management.

Arkin Kaplan Rice attorney Howard Kaplan, who represents a group of 14 senior creditors holding $730 million worth of bank debt, called the new plan “unfair to the largest class of Tribune shareholders” and said his group would fight it. The creditors committee also issued a statement calling the settlement unfair and vowed to oppose it if it was not modified.

The new plan, which emerges after many months of shifting alliances among the major parties in the case, follows the general outlines of a proposal filed Sept. 17 by Oaktree and Angelo Gordon alone. It is designed to allow Tribune operating businesses, including the Los Angeles Times, KTLA-TV Channel 5 and the Chicago Tribune, to exit bankruptcy in relatively short order without first having to resolve the tangle of legal claims generated by the company’s ill-fated 2007 leveraged buyout.

Those claims would be put into what’s known as a litigation trust to be fought over in court by junior creditors while the company emerges free and clear, owned by the banks and hedge funds that control its senior debt — including Oaktree, Angelo Gordon and JPMorgan.

Junior creditors, including Aurelius and the creditors committee, have claimed that the buyout, which was led by Chicago real estate magnate Sam Zell, was an example of “fraudulent conveyance,” meaning it left the firm insolvent from the start.

mdoneal@tribune.com