In re Tribune Co.

Decision Date31 October 2011
Docket NumberNo. 08–13141 (KJC).,08–13141 (KJC).
Citation55 Bankr.Ct.Dec. 179,464 B.R. 126
PartiesIn re TRIBUNE COMPANY, et al.,1 Debtors.
CourtU.S. Bankruptcy Court — District of Delaware

OPINION TEXT STARTS HERE

Bryan Krakauer, Sidley, Austin, Brown & Wood LLP, George R. Dougherty, Grippo & Elden LLC, Holly Snow, Paul Hastings LLP, James F. Conlan, Sidley Austin LLP, John R. McCambridge, Michael W. Kazan, Patrick T. Nash, Grippo & Elden, Patricia K. Smoots, McGuireWoods LLP, Patrick Theodore Garvey, Johnson & Bell, Ltd., Stephen Novack, Novack and Macey LLP, Chicago, IL, Carl D. Neff, Ciardi Ciardi & Astin, J. Kate Stickles, Norman L. Pernick, Patrick J. Reilley, Cole, Schotz, Meisel, Forman & Leonard, John H. Strock, III, Fox Rothschild LLP, Robert S. Brady, Young, Conaway, Stargatt & Taylor, Wilmington, DE, Edward Cerasia, II, Seyfarth Shaw LLP, Jared D. Zajac, McDermott Will & Emery LLP, New York, NY, Michael A. Henry, Gross, McGinley, Labarre & Eaton, LLP, Allentown, PA, for Debtors.

OPINION ON CONFIRMATION 2

KEVIN J. CAREY, Bankruptcy Judge.

The Scorpion and the Fox 3

Once, long ago, there was a vast river that had to be crossed for animals to reach food and water. One day, Fox came to the river, and, as he stood contemplating the best place to cross the river safely, Fox's bitter enemy, Scorpion, came upon Fox.

“Fox, as I was walking along the river bank looking for food, I noticed a particularly easy place to cross the river where the water is not so deep and the current not so swift. I would like to cross over myself, but cannot swim. If I show you this place,” asked Scorpion, “would you be willing to take me across?”

“Why should I take you across? We are enemies. How could I possibly trust that you will not sting me on the way across?” asked Fox.

“Why would I sting you? If I stung you, it would mean you would drown; then both of us would die,” replied Scorpion.

Surveying the Scorpion with a distrustful eye, Fox considered this. Then, with a hesitant resolve, Fox said, “Show me where the place is, and I will take you across.”

Fox walked over to Scorpion and allowed him to climb onto his back. Scorpion showed Fox the place to cross over. Fox began swimming, but when he reached the middle of the river, Fox felt a sharp stinging sensation on his back and realized he had been stung by Scorpion.

As they both sank to the bottom of the river, Fox, now resigned to the inevitable, said to Scorpion: “You said there would be no sense in stinging me—why did you do it?”

Scorpion replied, “It is better we should both perish rather than my enemy should live.”

There is no moral to this story. Its meaning lies in the exposition of an inescapable facet of human character: the willingness to visit harm upon others, even at one's own peril. Our story follows.

INTRODUCTION

On December 8, 2008 (the “Petition Date”), Tribune Company and certain of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code (11 U.S.C. § 101 et seq.). Before the Court are two competing plans of reorganization for the Debtors: one proposed jointly by the Debtors, the Official Committee of Unsecured Creditors and certain senior lenders (referred to herein as the “Debtor/Committee/Lender Plan” or the “DCL Plan”),4 and one proposed jointly by the holders of certain bonds that were issued prior to the 2007 leveraged buyout of Tribune (referred to herein as the “Noteholder Plan”). 5

Voting on competing plans of reorganization was accomplished as directed by Court Order dated December 9, 2010, as amended, which, among other things, approved a general disclosure statement about the Debtors, approved specific disclosure statements for each plan, and established procedures for solicitation and tabulation of votes for the plans. (Docket No. 7126). A hearing to consider the confirmability of the DCL Plan and the Noteholder Plan was held over a two-week period in March 2011 and continued on April 12, 13, and 14, 2011. After post-hearing briefing, closing arguments were heard on June 27, 2011 (collectively, the “Confirmation Hearing”).6

Although a number of parties object to the competing plans on various grounds, the main source of contention arises from the DCL Plan's proposed settlement of certain LBO–Related Causes of Action with the Senior Lenders and the Bridge Lenders, who loaned more than $10 billion to Tribune in connection with the 2007 leveraged buy-out (or “LBO”) of Tribune.7 The Noteholder Plan Proponents argue that the DCL Plan's proposed settlement amount is unreasonable considering the value of those LBO–Related Causes of Action which, if successful, could provide substantial recoveries to pre-LBO noteholders.

In contrast, the Noteholder Plan preserves all of the LBO–Related Causes of Action and creates two trusts to prosecute “vigorously” those claims postconfirmation. The DCL Plan Proponents argue that the Noteholder Plan has fundamental flaws that prevent confirmation under Bankruptcy Code § 1129(a), but, further, that the Plan is not in the best interests of creditors, since it provides minimal distributions now, with a possibility of increased future distributions to creditors only after protracted and risky litigation. They contend:

This gamble may be fine for the Noteholder Plan's sponsors, who are professional investors and who either bought their claims deep into the bankruptcy proceedings for the very purpose of making this litigation play, or are far out of the money and have nothing to lose. But it hazards the fortunes of the Debtors' other creditors, many of whom are retirees or trade creditors, not professional investors, and almost all of whom voted against the Noteholder Plan and in favor of the DCL Plan.

(DCL Brief, docket no. 8897, at 5). The DCL Plan Proponents argue that the Noteholder Plan purports to be a plan of reorganization, but is not focused on the successful reorganization and advancement of the ongoing operations of the Reorganized Debtors.

For the reasons discussed below, I conclude that neither the DCL Plan nor the Noteholder Plan meets the § 1129 requirements for confirmation.

BACKGROUND

A. Overview of the Debtors' Business

Tribune Company is a Delaware corporation with its principal place of business in Chicago, Illinois. (Examiner's Report, Vol. I, at 43).8 Tribune Company directly or indirectly owns all (or substantially all) of the equity in 128 subsidiaries (the “Tribune Entities”), of which 110 are Debtors. ( Id.). The Tribune Entities are a leading media and entertainment conglomerate reaching more than eighty percent (80%) of households in the United States through their newspapers, other publications and websites, their television and radio stations, and their other news and entertainment offerings. ( Id.).

The Tribune Entities' operations are divided into two primary industry segments: the “Publishing Segment” and the “Broadcasting Segment.” ( Id. at 44). The Publishing Segment accounted for seventy percent (70%) of the Tribune Entities' consolidated revenues in 2009. (DCL Ex. 376, General Disclosure Statement, at 8 (docket no. 7232)(the “GDS”)). The Publishing Segment includes operation of eight major-market daily newspapers: The Los Angeles Times, Chicago Tribune, South Florida Sun–Sentinel, Orlando Sentinel, The Sun, Hartford Courant, The Morning Call, and The Daily Press. ( Id.).

The Broadcasting Segment accounted for thirty percent (30%) of the Tribune Entities' consolidated operating revenues in 2009 and includes 23 television stations in 19 markets. (GDS at 13). Various Tribune entities also have investments (typically minority equity interests) in a number of private corporations, limited liability companies, and partnerships, including CareerBuilder, Classified Ventures, TV Food Network, Homefinder, Topix, quadrantONE and Metromix. (GDS at 15).

B. Pre–Petition Debt Structure and the LBO1. Pre–LBO Indebtedness

Senior Notes: Between March 1992 and August 2005, Tribune and certain of its predecessors entered into a series of indentures and supplements thereto, pursuant to which the “Senior Notes” were issued.9 The Senior Notes are unsubordinated obligations of Tribune. (Examiner's Report, Vol. I, at 57). The Senior Notes Indentures contain similar covenants, including the requirement that any liens granted to secure other indebtedness of Tribune or its Subsidiaries also equally and ratably secure the Senior Notes. ( Id.). As a result, the Senior Notes are secured by the Stock Pledge on a pari passu basis with the indebtedness under the Senior Loan Agreement (defined below), which was executed as part of the 2007 LBO. ( Id., DCL Ex. 822). However, the Senior Notes are not guaranteed by Tribune's Subsidiaries.10 (Examiner's Report, Vol. I, at 57).

PHONES Notes: In April 1999, Tribune issued eight million Exchangeable Subordinated Debentures due 2029 (the “PHONES Notes”) in an aggregate principal of $1.256 billion.11 (GDS at 24). The PHONES Indenture provides that the PHONES Notes are subordinate in right of payment to all “Senior Indebtedness” of Tribune. (Examiner's Report, Vol. I, at 64). The PHONES Notes are not guaranteed by Tribune's subsidiaries. (GDS at 24).

2006 Credit Agreement. On June 19, 2006, Tribune entered into a credit agreement with various lenders for (i) a $1.5 billion unsecured term loan facility, of which $250 million was used to refinance certain medium-term notes that matured November 1, 2006, and other term loan proceeds were used to finance a portion of Tribune's repurchase of Tribune Common Stock pursuant to the 2006 Tender Offer, and (ii) a $750 million unsecured revolving facility (the 2006 Credit Agreement”).12 (Examiner's Report, Vol. I, at 68–70). Tribune was the sole borrower under the 2006 Credit Agreement, which was neither guaranteed nor secured. ( Id.).

2006 Bridge. At the same time as the 2006 Credit Agreement, Tribune entered into a bridge credit agreement with various lenders for a $2.15 billion unsecured bridge...

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