Zell may benefit from bankruptcy judge's opinion


The Tribune Company Chapter 11 bankruptcy case is heading toward its third anniversary next month after US Bankruptcy Judge Kevin Carey rejected both competing reorganization plans. After some closer examination of the decision, reporter Michael Oneal of the company’s flagship Chicago Tribune has concluded that Carey’s decision may benefit Sam Zell (pictured), who engineered the ill-fated 2007 leveraged buyout (LBO) of the company that ended in bankruptcy.

Carey’s decision leaned toward the plan supported by Tribune’s senior creditors, Oaktree Capital Management, Angelo, Gordon & Co, and JPMorgan Chase Bank, along with Tribune management and the Official Committee of Unsecured Creditors. But one of his complaints about that plan was that it was unfair to holders of some deeply subordinated notes known as PHONES.

Oneal’s report says sources close to the situation now think the PHONES holders could recover as much as $130 million when a new plan is put together. And they might also get more from s litigation trust to be set up as part of the plan to let Tribune emerge from Chapter 11. That’s still a lot less than the $1 billion face value, but a big improvement from the minimal recovery they would have gotten under the rejected plan.

Sam Zell doesn’t own the PHONES, but the securities he received in the LBO carry a lot of the same legal language as the PHONES. Oneal’s story says Zell’s attorneys will argue that he should receive a recovery of tens of millions of dollars for his claim of $225 million.

RBR-TVBR observation: There would certainly be outcry over any recovery by Zell from folks who blame him for the entire bankruptcy, but he and his lawyers will certainly do what they can to reduce his personal losses from this failed investment.