Tribune investors sue banks that arranged financing

CHICAGO, Oct 30 (BestGrowthStock) – A group of investors in
bankrupt Tribune Co (TRBCQ.PK: ) sued JPMorgan, Merrill Lynch,
Citicorp and Bank of America, claiming the banks arranged $3.7
billion in loans in 2007 they knew the company could never
repay.

“The Lead Banks knew that this financing was barred by the
terms of the Credit Agreement and it was tainted with fraud and
other misconduct,” said the lawsuit, which was filed late on
Friday.

Tribune, owner of the Los Angeles Times, the Chicago
Tribune and 23 television stations, filed for bankruptcy in
2008, just a year after real estate developer Sam Zell bought
the company with billions of dollars in debt.

Representatives for the JPMorgan, Bank of America and
Merill Lynch were not immediately available to comment on the
lawsuit. Citicorp declined to comment.

The lawsuit, which claimed that the banks had no exposure
to the loans and collected more than $120 million in fees, was
filed in the New York Supreme Court in Manhattan.

The plaintiffs, including Alden Global Distressed
Opportunities Fund and Arrowgrass Distressed Opportunities
Fund, claim that the loans arranged by the defendants prevented
Tribune from paying back earlier debt obligations.

Separately, New York hedge fund operator Aurelius Capital
Management proposed a competing plan late on Friday for the
reorganization of Tribune that would take an aggressive stance
in pursuing lawsuits stemming from the buyout of the troubled
publisher.

The filing in a Delaware court set the stage for a showdown
with those who back the company’s plan for getting out of
bankruptcy. That plan has the support of other creditors
including some big hedge funds and JPMorgan Chase & Co (JPM.N: ).

An examiner’s report earlier this year said part of the
buyout deal engineered by Zell might be “an intentional
fraudulent conveyance.” That opens the door to legal challenges
to banker fees, creditor claims and billions in payments to
shareholders.

AGGRESSIVE TACTICS

Aurelius, a Tribune creditor, is known for its aggressive
tactics in bankruptcy. A steady stream of litigators from law
firm Akin Gump Strauss Hauer Feld LLP filed requests with
Delaware’s bankruptcy court to appear on the hedge fund’s
behalf as it prepared for a showdown.

Under Aurelius Capital Management’s plan, a reserve would
be created for holders of the company’s bonds.

Aurelius would then aggressively pursue lawsuits against
Zell, the lenders who supported his leveraged buyout in 2007,
advisers and company executives among others.

As part of the company-backed reorganization plan,
JPMorgan, Merrill Lynch, Merrill’s parent Bank of America Corp
(BAC.N: ) and Citigroup Inc (C.N: ) agreed to pay $120 million to
settle claims over the fees paid to leveraged-buyout bankers.

Tribune has been stuck in bankruptcy court for nearly two
years. Its attempts to exit Chapter 11 have been overshadowed
by a management upheaval.

The company last week replaced Chief Executive Randy
Michaels, who became a target of critics following a New York
Times story that quoted numerous employees who were upset at
pervasive sexual banter and profanity among top managers.

The company has backed a plan along with JPMorgan, Oaktree
Capital Management LP and Angelo Gordon & Co LP in which those
three would end up with most of the company’s equity in return
for their senior loan claims. The board transferred his duties
to a four-member committee.

The case is In Re Tribune Co, U.S. Bankruptcy Court,
District of Delaware, No. 08-13141.
(Reporting by Tom Hals and Mark Weinraub; editing by Mohammad
Zargham)

Tribune investors sue banks that arranged financing