In the wake of a damaging independent report, the Tribune Company's proposed plan to pull itself out of bankruptcy is in serious doubt and may ultimately fall apart.
That was the news coming out of a status hearing in U.S. Bankruptcy Court in Delaware on Friday, where attorneys for the Tribune Company and a group of shareholders said they could not come to an agreement in the case.
"The debtor has tried mightily to bring the parties together," Tribune Co. lead attorney James Conlan said, according to the Los Angeles Times. "That hasn't happened."
Conlan warned to "cast the case into extended litigation if the warring parties can't come to an agreement," according to the Tribune Co.-owned paper.
He said that the company intends to file revisions to its proposed plan by August 27. The revisions will be reviewed by the court in a hearing on September 15.
"Those amendments will be designed to achieve a 'yes' vote from all creditor constituencies, who we believe upon reflection should be in the money," Conlan said.
If an agreement can be reached, the case could move forward as scheduled. But there appears to be a very real chance of that not happening, according to several accounts of the court proceedings.
According to a Chicago radio report, JPMorgan Chase and "distressed-debt specialist" Angelo, Gordon and Co. have dropped out of an original settlement agreement that would have given them ownership of the Tribune.
The case has been under intense scrutiny from Tribune's creditors since the start. Last month, Kenneth Klee — an independent examiner appointed by the U.S. Bankruptcy Court to investigate claims of “fraudulent conveyance” against the company brought by junior bondholders — indicated there was “dishonesty” in Sam Zell’s $8.2 billion 2007 buyout of the Tribune Co.. In a 600-page report submitted to the court, Klee said it was "likely that a court would conclude” that fraud had occurred in the deal’s later stages.
He did find not evidence fraud by Zell, the Tribune’s chairman, or outside investors, but said “one or more of Tribune’s officers breached their fiduciary duties.” (Klee didn’t name names, but the report noted that Klee interviewed Zell, former Tribune Co. chairman Dennis FitzSimons, ex-finance SVP Donald Grenesko and current EVP Nils Larsen.)
Conlan's threat to send the case into "extended litigation" could call the opposition's bluff — or, as the Chicago Sun-Times noted last month — “could throw the company’s 20-month-old bankruptcy case into turmoil."