Lenders may take control at Tribune


Negotiations for Tribune Company to emerge from Chapter 11 are said to be focusing on a plan which would hand over control to banks and investors holding $8.6 billion in senior debt. The source for this report is pretty close to the story – The Chicago Tribune.

When Tribune Company filed for bankruptcy court protection in December, it didn’t have a plan in place for reorganizing under Chapter 11, nor any timetable for completing the process. Half a year later the company is still in relatively early negotiations on what’s sure to be a complicated reworking of a company with $12 billion in debt.

According to the report in the flagship Chicago Tribune, the “general contours” of the plan being negotiated would hand over majority ownership to debt holders in a debt-for-equity swap. That, the story said, would wipe out the $90 warrant Zell bought when he took Tribune Co. private in 2007, allowing him to buy a 40% stake in th future for $500 million. Also, the $250 million loan he made to the company is a subordinated note way down the hierarchy of claims and probably out of the money.

So, will Zell himself stay at Tribune? The story said it is too early in the process to determine the eventual management structure.

The creditors identified as being involved in the negotiations include JPMorgan Chase, Citigroup, Oaktree Capital Management and Angelo, Gordon & Co.

The eventual plan to emerge from Chapter 11 is certain to be complex. Zell is said to be arguing the benefits of the tax-friendly Employee Stock Ownership Plan (ESOP) which currently owns the company. The lenders would not be eligible to be owners under the ESOP, so maintaining it might mean that they would have to wait years to exercise rights and be able to monetize their holdings. That’s a tough proposal to sell to the banks and investment funds.

RBR/TVBR observation: It will be interesting to see whether the negotiators can figure out a way to preserve the tax-advantaged ESOP ownership structure. If not, does that make the beleaguered company even less valuable?