Bondholders of Tribune Co. have asked a bankruptcy court judge to allow them to scrutinize the company’s 2007 sale to real estate mogul Sam Zell. They say the deal overloaded the company with debt and caused it to file for Chapter 11.
WILMINGTON, Del. (AP) — Bondholders of newspaper and television station owner Tribune Co. have asked a bankruptcy court judge to allow them to scrutinize the company’s 2007 sale to real estate mogul Sam Zell. They say the deal overloaded the company with debt and caused it to file for Chapter 11.
In a filing late Wednesday in Delaware court, bondholders said the “fraudulent” deal imposed an “unsustainable debt burden” on an already declining business. They said the banks that arranged Zell’s $8.2 billion leveraged buyout “now concede that the transaction was a ‘mistake’.”
The bondholders aim to halt Tribune’s exit from Chapter 11 protection under a plan they say will give “all but a sliver” of the publisher to the very banks they claim caused its demise. The group, which represents holders of 18 percent of the company’s bonds, is asking to see related e-mails and other communications, as well as interviews of key participants in the deal.
A call to Tribune for comment wasn’t immediately returned early Thursday.
Zell purchased Chicago-based Tribune, which owns the Los Angeles Times and Chicago Tribune, as well as other dailies and 23 TV stations, and took the company private in December 2007. He became chairman and CEO.
Just before the buyout closed, the four banks financing the deal — JP Morgan Chase & Co., Merrill Lynch & Co., Citigroup Inc. and Bank of America Corp. — gave it last-minute scrutiny because of declining conditions at Tribune and in the public markets. However, they determined that the company cleared all the benchmarks needed to guarantee financing.
A year later, Tribune filed for bankruptcy protection, blaming a severe downturn in advertising revenue because of the recession. But some creditors pointed the finger at the company’s nearly $13 billion in debt, most of it stemming from the complex transaction known as a leveraged buyout that Zell had orchestrated.
Zell has said that when he made the offer for Tribune, its revenue had been declining at about 3 percent annually. He has said the transaction was packaged with the assumption that the revenue decline would double to 6 percent, but the company instead ended up seeing a 20 percent drop.
In their 58-page filing, the bondholders point to that 6 percent estimate as evidence that the deal was based on solvency opinions that relied on “unrealistic” assumptions.
Around the same time that Tribune entered bankruptcy protection, most of the architects of its buyout were also in trouble. Merrill Lynch was taken over by Bank of America in a hastily arranged deal during the same September weekend that rival investment bank Lehman Brothers failed. New York-based Citigroup and Charlotte, N.C.-based Bank of America have been hefty recipients of federal bailout funds, at $45 billion each.
The bondholders said that as the group “most harmed by the LBO,” they are entitled to the requested investigation. They said that based on Tribune’s reported plan to deliver most of its assets to the LBO lenders, “the process has been set up to steamroll a settlement or ignore the LBO claims without the consent of affected creditors.”
“For these claims to be potentially white-washed and swept under the rug would make this case a travesty,” they said in the filing. “Chapter 11 clearly should not be a vehicle to deliver reorganized equity to the lenders that caused the Debtors’ demise.”