Judge Denies Junior Creditors’ Challenge in Tribune Co. Bankruptcy Case

The junior creditors, led by Aurelius Capital Management, must pay $1.5 billion by Wednesday

A motion by the leading junior creditor in the Tribune Company's bankruptcy case to stay for six months a bankruptcy court decision without paying a $1.5 billion bond has been denied by a federal judge.

Aurelius Capital Management, a New York-based hedge fund, failed in its attempt Monday to stop its required payment. It now must cough up the money by Wednesday or its stake in the bankrupt company will be handed to the senior creditors in the reorganization plan, U.S. Bankruptcy Judge Kevin Carey ruled.

Last month, Carey approved the plan that will bring Tribune out of Chapter 11 bankruptcy after three-and-a-half years.

The requirement of a bond is common in bankruptcy cases to protect creditors from losing money if the company is devalued during the course of the restructuring.

However, another motion — made by two other trustees for the junior creditors hoping to modify the $1.5 billion bond requirement — has not been ruled on. 

Last month, the junior creditors sued 35,000 former Tribune shareholders who cashed out in the company's 2007 leveraged buyout designed by real estate mogul Sam Zell.

Also read: Judge Approves Tribune Co.'s Plan to Transfer Ownership

The senior creditors, led by the Los Angeles-based Oaktree Capital Management, must now await approval from the Federal Communications Commission to transfer Tribune's television and radio broadcast licenses. The other senior creditors include hedge fund Angelo, Gordon & Co. and JP Morgan Chase.

Tribune owns the Los Angeles Times, the Chicago Tribune, KTLA-TV, WGN television and radio, Zap2It.com, and an array of other media properties and real estate.

The restructuring is expected to help the $7 billion company — which is $13 billion in debt — access $1.1 billion in new debt financing and a $300 million line of credit.