Pre-buyout bondholders of Tribune Company have asked a federal bankruptcy judge to order the company to give them access to internal documents about the buyout. They are apparently trying to build a case that the company was overleveraged from the get-go – and that CEO Sam Zell and his lenders knew it all along.
Why does this matter? If the bondholders, who rank below the secured bank lenders, can prove that the banks knew, or should have known, that the financial structure of the Tribune Company was unsustainable once its debt load was increased to over $12 billion, then they can make the case that it was a fraudulent conveyance of the company’s assets and try to derail the plan to hand over most of Tribune’s equity to the banks to cancel the secured debt.
A court filing by the bondholders states that Tribune Company has refused the request from their legal counsel for emails, a second solvency statement (which, unlike the first, was not made public) and other documents related to the leveraged buyout financing. If the court won’t let their lawyer have the documents, they ask instead that the judge appoint an independent examiner to study the communications related to the deal.
In support of the request, the bondholders’ counsel submitted a pile of news stories, most appearing to indicate in one way or another that the Tribune LBO was doomed to fail right from the start.