In re Tribune Co., 08–13141 (KJC).

• Decision Date: 09 April 2012
• Docket Number: No. 08–13141 (KJC).,08–13141 (KJC).
• Citation: 472 B.R. 223
• Parties: In re TRIBUNE COMPANY, et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

472 B.R. 223

In re TRIBUNE COMPANY, et al.,¹ Debtors.

No. 08–13141 (KJC).

United States Bankruptcy Court,

D. Delaware.

April 9, 2012.

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

MEMORANDUM REGARDING ALLOCATION DISPUTES²

KEVIN J. CAREY, Bankruptcy Judge.

As detailed in its October 31, 2011 Opinion, this Court denied confirmation of two competing plans of reorganization for the Debtors because both plans failed to meet the requirements of Bankruptcy Code § 1129. In re Tribune Co., 464 B.R. 126 (Bankr.D.Del.2011) (the “Confirmation Opinion” or Tribune I ). Three motions for reconsideration of the Confirmation Opinion were filed.³ On December 29, 2011, this Court issued a Memorandum on Reconsideration granting the relief requested in the Law Debenture Reconsideration Motion and the Aurelius Reconsideration Motion and striking that part of the Confirmation Opinion defined as the “Subordination Determination.” ⁴In re Tribune Co., 464 B.R. 208 (Bankr.D.Del.2011) (the “Reconsideration Decision” or Tribune II ). There, I concluded that fraudulent transfer claims, that would be pursued by the Litigation Trust established by the DCL Plan ( see n. 6), are not assets belonging to the Debtors and, therefore, could not be “assets of the Company” subject to the subordination provisions of the PHONES Notes.⁵ Upon reconsideration and further review of the meaning of the phrase “[u]pon distribution of the assets of the Company” in light of applicable state law and the entirety of the PHONES Indenture, I determined that the phrase “assets of the Company” must be read broadly and amended the Confirmation Opinion to strike the Subordination Determination. ( Id.).

On November 18, 2011, the DCL Plan Proponents filed the Third Amended Joint Plan of Reorganization for Tribune Company and Its Subsidiaries (D.I. 10273) (the “Third Amended Plan”).⁶ The Third Amended Plan includes an “Allocation Dispute Protocol” which proposes to establish reserves for distributions to holders of allowed claims in certain classes that would be impacted by unresolved disputes regarding inter-creditor priorities, particularly with respect to the PHONES Notes and the EGI–TRB LLC Notes (the “EGI Notes”).⁷ (Third Amended Plan, § 5.18 and Exhibit 5.18). The parties disagreed about the timing for resolution of the “Allocation Disputes,” specifically whether the disputes should be resolved prior to solicitation of votes on the Third Amended Plan. The parties have argued persuasively that those entitled to vote on the Third Amended Plan should know definitively where they may fall in the priority scheme before being required to cast a vote. Moreover, resolution of the Allocation Disputes will reduce the need for reserves. Bankruptcy Rule 7001(8) provides that subordination issues must be decided either via adversary proceeding or in connection with confirmation.

Therefore, the Court has agreed to resolve the Allocation Disputes prior to plan solicitation and voting; however, all such determinations are subject to, conditioned upon and for the purpose of obtaining confirmation of a chapter 11 plan substantially in the form of the Third Amended Plan (D.I. 10273), hearing on which is scheduled to commence on June 7, 2012 (D.I. 11362).⁸

The parties submitted proposed schedules for resolution of the “Allocation Disputes” and the process for confirmation of the Third Amended Plan. On January 24, 2012, the Court entered the Order Establishing Scheduling for (1) Resolution of the Allocation Disputes and (2) Consideration of the DCL Plan Proponents' Supplemental Disclosure Document, Solicitation Procedures Motion and Plan. (D.I. 10692) (the “Allocation Procedures Order”). The Allocation Procedures Order defined the “Allocation Disputes” as follows:

a. PHONES Notes Disputes. Disputes concerning the following issues related to the PHONES Notes: (i) whether and to what extent the Article III Distributions must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that all or any portion of the consideration provided by the Senior Lenders, Bridge Lenders, and Settling Step Two Payees in respect of the Settlement are or are not subject to the subordination provisions of the PHONES Notes Indenture; (ii) whether and to what extent the priority of the distributions from the Creditors' Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that all or any distributions from the Creditors' Trust are or are not subject to the subordination provisions of the PHONES Notes Indenture; (iii) whether and to what extent the Article III Distributions or the priority of distributions from the Creditors' Trust and/or the Litigation Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that any category of Other Parent Claims ( i.e., the Swap Claim, the Retiree Claims or general unsecured trade claims against Tribune) does or does not constitute “Senior Indebtedness”, as defined by the PHONES Notes Indenture (including, without limitation, because any category of Other Parent Claims does or does not constitute “Indebtedness,” as that term is defined in the PHONES Notes Indenture and used in the PHONES Notes Indenture's definition of “Senior Indebtedness”); (iv) the Allowed amount of the PHONES Notes Claims; (v) whether and to what extent beneficiaries of the subordination provisions of the PHONES Notes Indenture (as determined by the Bankruptcy Court, if applicable) are entitled to receive post-petition interest prior to the Holders of PHONES Notes Claims receiving payment on their Claims; and (vi) whether the PHONES Notes are senior in right of payment to the EGI–TRB LLC Notes; and

b. EGI–TRB LLC Notes Disputes: Disputes concerning the following issues related to the EGI–TRB LLC Notes: (i) whether and to what extent the Article III Distributions must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that all or any portion of the consideration provided by the Senior Lenders, Bridge Lenders, and Settling Step Two Payees in respect of the Settlement are or are not subject to the subordination agreement governing the EGI–TRB LLC Notes; (ii) whether and to what extent the priority of the distributions from the Creditors' Trust and/or the Litigation Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with the assertions that all or any distributions from the Creditors' Trust and/or the Litigation Trust are or are not subject to the subordination agreement governing the EGI–TRB LLC Notes; (iii) whether and to what extent the Article III Distributions or the priority of distributions from the Creditors' Trust and/or the Litigation Trust must be adjusted in order for the distributions under the Plan to satisfy the applicable requirements of the Bankruptcy Code in connection with assertions that any category of Other Parent Claims ( i.e., the Swap Claim, the Retiree Claims or general unsecured trade claims against Tribune) does or does not constitute “Senior Obligations”, as defined by the subordination agreement governing the EGI–TRB LLC Notes; (iv) whether and to what extent beneficiaries of the subordination agreement governing the EGI–TRB LLC Notes (as determined by the Bankruptcy Court, if applicable) are entitled to receive post-petition interest prior to the Holders of EGI–TRB LLC Notes Claims receiving payment on their Claims; and (v) whether the EGI–TRB LLC Notes are senior in right of payment to the PHONES Notes.

(Allocation Procedures Order, ¶ 2).⁹ The parties engaged in discovery and submitted briefs according to the schedule in the Allocation Procedures Order. A hearing to consider the Allocation Disputes was held on March 5 and 6, 2012 (the “AD Hearing”). Limited, post-hearing letter briefs were submitted. The parties have also stipulated to certain facts and have agreed to an Amended Master Exhibit List (D.I. 11116).¹⁰

DISCUSSION

A. Issues Related to the PHONES Notes

1. Are the PHONES Notes' subordination provisions applicable to (i) a distribution of Settlement Proceeds under the Third Amended Plan, or (ii) a distribution of Creditors' Trust proceeds?

The Confirmation Opinion noted that the DCL Plan included two settlements known as the LBO Settlement and the Step Two Disgorgement Settlement (together the “DCL Plan Settlement”).¹¹Tribune I, 464 B.R. at 152. The DCL Plan Settlement is preserved substantially in the Third Amended Plan. ( See Supplemental Disclosure Document Relating to the Third Amended Plan (D.I. 10275) at 18).

The DCL Plan created (and the...