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Creditors: Tribune deal 'dead on arrival'

DOVER, Del. — Lenders who say they are owed more than $3.6 billion by Tribune Co. are calling a purported global settlement that the media company announced last week “dead on arrival.”

The creditors, who had lent the money under a 2007 secured credit agreement, said in a court filing yesterday that the announcement of the deal was premature and misleading.

Tribune had described the deal as key to emerging from Chapter 11 bankruptcy protection by settling potential claims related to an $8.3 billion leveraged buyout engineered by real estate mogul Sam Zell that left the company mired in debt.

Tribune, which publishes the Los Angeles Times, Chicago Tribune, The (Baltimore) Sun and other daily newspapers and owns TV and radio stations, has been in Chapter 11 protection since Dec. 2008.

The lenders filing the latest complaint include Oaktree Capital Management, Goldman Sachs Loan Partners and Marathon Asset Management.

A separate group of creditors — junior bondholders represented by Wilmington Trust Co. — alleged in a lawsuit last month that J.P. Morgan Chase and other banks that financed the 2007 leveraged buyout engaged in fraudulent conduct because they knew the debt load would leave Tribune insolvent. Those creditors hold $1.2 billion in Tribune bonds that they stand to lose in the case.

Tribune said last Thursday that it has come to an agreement with a senior bondholder, Centerbridge Partners, to settle any potential claims that it might have brought related to the buyout. Centerbridge, which holds 37 percent of Tribune’s outstanding senior bond debt, would get a 7.4 percent stake in Tribune, paid in a combination of cash, stock and debt, if the court approves Tribune’s plan.

Tribune said J.P. Morgan and Angelo, Gordon & Co., two of the financial firms that stand to take over a 91 percent stake in the company under the plan, have also agreed to the settlement, as has Tribune’s committee of unsecured creditors.

But in a filing in U.S. Bankruptcy Court in Wilmington, Oaktree and other secured credit agreement lenders argued that they would bear the entire burden of the proposed settlement by giving up more than $400 million in value to bondholders and other unsecured creditors. They reiterated their request that the court terminate Tribune’s exclusive authority to file a reorganization plan, so that they can submit an alternative.

“There is no reason not to give all creditors a choice,” wrote attorneys for the credit agreement lenders.

Tribune was expected to file its reorganization plan later Monday in advance of a hearing on Tuesday.

Tribune spokesman Gary Weitman declined to comment on the filing by the credit agreement lenders.

The lenders argue that they would be left “holding the bag,” while Zell, other current and former Tribune directors and officers, and J.P. Morgan and the other banks that financed the buyout, would be absolved of any liability and “released for free,” without making any payment or consideration to creditors.

“In short, the proposed settlement is unwise and unfair and, as will be shown at the appropriate time, the proposed plan incorporating that settlement is unconfirmable for multiple reasons,” attorneys wrote.

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