Favorable Settlement for Official Committee of Unsecured Creditors in Tribune Company Bankruptcy

Founded in 1847, the Tribune Company grew into a major national media company. By 2007, its holdings included newspapers such as the Chicago Tribune and Los Angeles Times, local and cable television stations, and the Chicago Cubs baseball team. In 2007, billionaire Sam Zell orchestrated a leveraged buyout (LBO) of Tribune in which the public shareholders were bought out. Tribune borrowed more than $11 billion in connection with the LBO. Less than one year later, under the crushing debt load created by the LBO loans, Tribune filed for bankruptcy.

Because of the structural priority of the LBO loans, the LBO lenders stood to receive the vast majority of the debtors’ assets, leaving little for Tribune’s other unsecured creditors, including the holders of senior notes and subordinated loans. The official committee of unsecured creditors retained Zuckerman Spaeder LLP as special counsel in 2009 to investigate, evaluate, and litigate claims arising out of the LBO.

The Zuckerman Spaeder team, including partners Graeme W. Bush, James Sottile, and Andrew N. Goldfarb, investigated whether the LBO loans were fraudulent conveyances and should be avoided or subordinated to the company’s other creditors. We obtained millions of pages of documents from dozens of parties; took deposition testimony from witnesses employed by LBO lenders, from firms that examined the Tribune’s solvency, and from the debtors; worked with financial advisors to evaluate the case for the insolvency of the company; and conducted an extensive legal analysis of the claims.

After the U.S. Bankruptcy Court for the District of Delaware granted the committee standing to pursue LBO-related claims, in November 2010 our attorneys filed two complaints—one against the LBO lenders to avoid the obligations incurred from the LBO loans as fraudulent conveyances, and another against officers, directors, shareholders, financial advisors to Tribune, and other third parties for a variety of claims. The second suit also seeks to recover the more than $8 billion that Tribune paid to shareholders for their stock.

The Bankruptcy Court stayed prosecution of both actions during the bankruptcy proceedings to focus on confirming a plan of reorganization. During the stay, Zuckerman Spaeder helped to negotiate a settlement of the claims against the LBO lenders. The settlement would increase unsecured creditors’ recovery from six or seven cents on the dollar to about 35 cents on the dollar. The settlement was incorporated in a plan of reorganization that was supported by the committee, the debtors, and the LBO lenders. Our firm was lead counsel for the committee in the three-week confirmation trial on that plan in April 2011.

Mr. Sottile presented closing arguments for the committee in late June 2011 before the Hon. Kevin J. Carey. In October 2011, the Bankruptcy Court found that the settlement was “fair, reasonable and in the best interests of the Debtors’ Estate,” and in July 2012, Hon. Carey confirmed the Tribune plan of reorganization, including the settlement of the LBO lender claims.

In March 2012, the second case initiated by the committee—against Tribune officers and directors, advisors, former shareholders, and others—was transferred to a multidistrict litigation proceeding in New York, where it is consolidated for pretrial activities with LBO-related cases brought by individual creditors. The claims in that case will be pursued by a litigation trust created by the Tribune plan of reorganization.

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