Tribune Executive Says Noteholder Plan Will ‘Scare’ Partners
By: STEVEN CHURCH
Business Week
March 14, 2011

March 14 (Bloomberg) - A plan by Tribune Co.’s noteholders will “scare away” potential business partners should the creditors win permission to reorganize the bankrupt publisher, company co-President Eddy Hartenstein said in court today. The noteholders’ plan would put as much as 65 percent of the company’s stock in a trust overseen by a court until a lawsuit related to Tribune’s 2007 leveraged buyout was resolved, according to court documents.

“It’s the proverbial man behind the curtain,” Hartenstein said. “You don’t know who is there. If that 65 percent equity of the company is something that isn’t controlled by a normal board with normal governance rules, it is going to scare away the potential partners.” U.S. Bankruptcy Judge Kevin J. Carey is faced with choosing between two reorganization proposals for Tribune during a hearing in Wilmington, Delaware.

Hartenstein was the final witness in support of Tribune’s proposal to reorganize about $13 billion of debt and settle the proposed buyout lawsuit. That plan, sponsored by JPMorgan Chase & Co. and two other lenders, would distribute new stock to Tribune’s creditors sooner than the competing noteholder plan. Under both plans JPMorgan and the other lenders would be the majority owners, according to Aurelius Capital Management LP, the main sponsor of the noteholder plan.

Orange County Register

Tribune is trying to buy the Orange County Register, a Southern California newspaper that has long competed with the Los Angeles Times for readers, according a person familiar with Tribune’s plans. The company submitted an initial indication of its interest to the Register’s owner, Freedom Communications Inc., because it would help cut production and distribution costs, the person said.

In an interview before he testified, Hartenstein said Tribune had considered buying the Register. He declined to say if the company made an offer to Freedom. Robert Emmers, a spokesman for Irvine, California-based Freedom, declined to comment on a possible purchase offer. “Freedom for a number of months has been in the process of evaluating its strategic options and the opportunities available,” Emmers said.

While buying the Register would be more complicated while much of Tribune’s stock is held by a trust, that’s a minor problem, said Marshall Sonenshine, chairman of Sonenshine Partners LLC, the New York-based investment bank that arranged the bankruptcy auction of the Philadelphia Inquirer newspaper last year.

‘Problems of Newspapers’

“The problems of newspapers are so great that is like the least of their worries,” Sonenshine said in an interview. Hartenstein became publisher of the Los Angeles Times, Tribune’s largest newspaper, in 2008 and last year was named one of four co-presidents who form the executive council that runs the company. Tribune owns eight newspapers, including the Chicago Tribune, with a combined daily circulation of 1.9 million last year. The company’s 23 TV stations include sites in New York, Chicago and Los Angeles.

Hartenstein said the bankruptcy has prevented Tribune from keeping up with the rest of the publishing industry through consolidating operations and forming new joint-ventures. Tribune, JPMorgan and the two hedge funds are sponsoring a plan that offers pre-buyout creditors more than $400 million to settle the most valuable of the potential buyout-related lawsuits.

Carey will decide whether to approve the settlement or allow pre-buyout creditors to pursue claims against JPMorgan and the lenders in a lawsuit. Pre-buyout noteholders, led by Aurelius Capital, claim the lawsuit may yield $1.57 billion if settled for its true worth. The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

-Editors: Stephen Farr, Peter Blumberg

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net.