UPDATE 2-Tribune bankruptcy unravels as talks fail

* New bankruptcy plan seeks wide support

* Company threatens to begin lawsuits if plan voted down

* Creditors warn that competing plans are likely
(Adds details and quotes from hearing)

By Tom Hals

WILMINGTON, Del., Aug 20 (BestGrowthStock) – Tribune Co’s plan to
end its 20-month bankruptcy appeared to unravel on Friday with
threats that the parties must accept a new plan or face legal
fights, while creditors warned they might try to seize control
of the reorganization.

The owner the Los Angeles Times, Chicago Tribune and more
than 20 television stations told a court that talks about how
to repay creditors, which continued past the hearing’s
scheduled start, had failed.

As a result, the company will file a new plan without input
from creditors on Aug. 27.

“We have tried mightily to bring the parties together. That
has not happened,” said Tribune’s attorney, James Conlan of
Sidley Austin.

Tribune filed for bankruptcy in December 2008, less than a
year after real estate developer Sam Zell led a leveraged
buyout of the media company.

Bondholders have claimed the buyout amounted to a
“fraudulent transfer” that piled the company with unsustainable
new debt and potentially wiped out their investment. They have
threatened a legal fight to remove the buyout lenders,
including JPMorgan Chase & Co (JPM.N: ), from the front of the
line for repayment.

Tribune had a plan earlier this year to settle those legal
issues, but that was undone by an examiner’s report last month
which emboldened bondholders, who are near the back of the line
for a payout.

Conlan told Delaware’s bankruptcy court that weighing the
examiner’s report and the company’s performance “brings us to
the place where we’re well qualified to say who’s been
unreasonable and who’s overestimating their leverage and who’s
not.”

Conlan said the amended plan would be designed to win the
support of all creditors, but failing that “we’ll need to
initiate litigation relating to fraudulent transfer issues.”

The company’s plans seemed to take creditors by surprise. A
lawyer for the committee of unsecured creditors in the case
said he was unaware of the plans until he arrived at court.

Many of the attorneys only offered brief comments on the
news and said they wanted to see Tribune’s plan.

This much was certain: a new plan would delay the company’s
emergence from bankruptcy. Prior to the examiner’s report, the
company was planning on having court approval of its
reorganization by the end of this month.

On Friday, Conlan said Tribune would ask the court to set
aside time in November to approve the new plan, although some
creditors said even that might be rushing things.

The attorney for unsecured creditors noted that Tribune no
longer has the exclusive right to propose a plan and control
the bankruptcy.

“Parties of interest have options,” said Howard Seife, a
Chadbourne & Parke attorney who represents the creditors
committee. “Other parties could file plans.”

An attorney for JPMorgan said there could be several
creditor groups offering up their plans.

The case is In Re Tribune Co, U.S. Bankruptcy Court,
District of Delaware, No. 08-13141.
(Reporting by Tom Hals. Editing by Robert MacMillan)

UPDATE 2-Tribune bankruptcy unravels as talks fail