Bondholders of Hartford Courant and WTIC Fox 61 TV station owner Tribune Co. have asked a bankruptcy court judge to allow them to scrutinize the company’s 2007 sale to real estate mogul Sam Zell. They say the deal overloaded the company with debt and caused it to file for bankruptcy.
In a filing in Delaware court, bondholders said the “fraudulent” deal imposed an “unsustainable debt burden” on an already declining business. They said the banks that arranged Zell’s $8.2 billion leveraged buyout “now concede that the transaction was a ‘mistake’.”
The bondholders aim to halt Tribune’s exit from bankruptcy protection under a plan they say will give “all but a sliver” of the publisher to the very banks they claim caused its demise. The group, which represents holders of 18 percent of the company’s bonds, is asking to see related e-mails and other communications, as well as interviews of key participants in the deal.
A call to Tribune for comment wasn’t immediately returned.
Zell purchased Chicago-based Tribune, which also owns the Los Angeles Times and Chicago Tribune, as well as other dailies and 23 TV stations, and took the company private in December 2007.
Just before the buyout closed, the four banks financing the deal — JP Morgan Chase & Co., Merrill Lynch & Co., Citigroup Inc. and Bank of America Corp. — gave it last-minute scrutiny because of declining conditions at Tribune and in the public markets.
A year later, Tribune filed for bankruptcy protection, blaming a severe downturn in advertising revenue because of the recession.
But some creditors pointed the finger at the company’s nearly $13 billion in debt, most of it stemming from the complex transaction known as a leveraged buyout that Zell had orchestrated.
Zell has said that when he made the offer for Tribune, its revenue had been declining at about 3 percent annually.
He has said the transaction was packaged with the assumption that the revenue decline would double to 6 percent, but the company instead ended up seeing a 20 percent drop.
The bondholders point to that 6 percent estimate as evidence that the deal was based on solvency opinions that relied on “unrealistic” assumptions. (AP)
