SAN FRANCISCO -- A group of creditors angling to get more money out of Tribune Co.'s bankruptcy case is alleging that greed and misconduct of the media company's lenders, advisers and own leaders led to its financial downfall.
A committee representing Tribune's unsecured creditors, which are relegated toward the back of the repayment line, filed two complaints late Monday in an attempt to recover billions of dollars from banks and company insiders. The creditors accuse them of shirking their duties so they could line their own pockets.
Virtually all the key principals involved in an $8.2 billion buyout of Tribune Co. in 2007 are named as defendants in the actions taken in U.S. Bankruptcy Court in Wilmington, Del. The unsecured creditors had been authorized to pursue the claims, technically known as "adversary proceedings," by U.S. Bankruptcy Judge Kevin Carey to preserve their legal rights before the statute of limitations expires.
Among others, the complaints target Tribune Chairman Sam Zell, the real estate mogul who engineered the buyout; other Tribune board members; former CEO Dennis FitzSimons; and other former executives.
The unsecured creditors also are going after the lenders and advisers that enabled Zell to take over one of the nation's oldest media empires. The complaints allege that the banks were so interested in reaping huge fees and getting old loans repaid that they repeatedly ignored warnings that the 2007 buyout would bury Tribune in too much debt.
The buyout was "tainted from start to finish," one of the complaints contends.
Tribune Co., which owns the Chicago Tribune, Los Angeles Times and more than 20 TV and radio stations, filed for bankruptcy protection in December 2008, a year after the buyout, because it wasn't generating enough revenue to repay more than $13 billion in debt.
JPMorgan Chase & Co.'s subsidiaries played a leading role in the buyout. Other major financiers and advisers included banks and firms owned by Bank of America Corp. and Citigroup Inc. Citigroup asserted the complaints are "without merit," and Bank of America declined to comment. Tribune spokesman Gary Weitman also declined to comment on behalf of Zell and other board members. FitzSimons, who resigned as Tribune CEO after the buyout was completed, didn't immediately respond to a request for comment, nor did JPMorgan.
The allegations of rampant fraud and other financial abuses threaten to deepen Tribune Co.'s legal troubles. The company, based in Chicago, hopes to emerge from bankruptcy protection by the end of the year. Adhering to that timetable became more difficult last week with the submission of three other reorganization plans to compete with a proposal backed by Tribune and several major debt holders, including JPMorgan.
Most adversary proceedings are used as bargaining chips by creditors that want a bigger share of money doled out in bankruptcy reorganizations, said Ira Herman, a bankruptcy lawyer in New York who isn't involved in the Tribune case. For that reason, adversary proceedings are typically settled, he said.
Some of the allegations leveled by the unsecured creditors echo a lawsuit filed in New York state court against JPMorgan, Bank of America and Citigroup last week by a group of the company's bondholders. Like last week's lawsuit, Monday's complaints build upon the findings of a court-appointed examiner, who concluded that some aspects of the buyout had bordered on fraud.
The complaints by the unsecured creditors provide more details, including e-mail exchanges from JPMorgan bankers involved in the 2007 buyout, to support their depiction of Tribune Co.'s lenders and advisers as money-grubbing charlatans who realized that the deal could ruin the company.
"There is wide speculation that the company might have put so much debt that all of its assets aren't going to cover the debt in case of (knock-knock) you-know-what," an unidentified JPMorgan analyst wrote to a colleague on April 7, 2007, according to the complaint. "Well that is basically what we are saying too, but we're doing this because it's enough to cover our bank debt."
In other e-mails in late March and early April 2007, the complaint said, an unidentified managing director for JPMorgan crowed about the $75 million in fees that the bank stood to make on the Tribune deal. "Can you say ka-ching!!" the managing director wrote in one excerpt included in the complaint.
While it tries to leave the bankruptcy case behind, Tribune Co. also has been reshuffling its leadership after a front-page story in The New York Times drew upon interviews with numerous employees to paint its management team as a lewd bunch that fostered a "frat house" atmosphere.
The backlash resulted in the resignation last month of CEO Randy Michaels, a former radio executive recruited by Zell. The four-man committee now running Tribune informed the staff that at least four other executives who used to work with Michaels at Clear Channel are also leaving as part of a restructuring.