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Examiner sees signs of dishonesty in Tribune sale (Reuters)

Tue, 27 Jul 2010 15:24:46 GMT

NEW YORK (Reuters) – The court-appointed examiner investigating Tribune Co's bankruptcy said he had found some evidence of dishonesty in the 2007 leveraged buyout of the media company by real estate developer Sam Zell.

In a more than 600-page document summarizing his findings, bankruptcy examiner Kenneth Klee said Tribune did not act forthrightly in getting an independent opinion about the company's solvency. He also said senior management did not "adequately discharge their duties" in preparing financial projections.

Klee did not mention any names.

Tribune's businesses include the Chicago Tribune and Los Angeles Times newspapers, as well as television stations such as superstation WGN and WPIX-TV in New York. The company tumbled into bankruptcy after Zell led an $8.2 billion takeover, which saddled it with billions of dollars of debt.

Klee had been tapped to investigate whether real estate developer Zell's leveraged buyout of Tribune left the company insolvent.

The findings are of particular interest to junior bondholders, who say their best chance of recovery lies in getting senior claims refused.

"The independent examiner issued his report late yesterday, and it is a lengthy document that we are still reviewing," Tribune spokesman Gary Weitman said. He declined to comment further.

Klee said he had found evidence indicating that Tribune's senior financial management did not apprise the company's board and special committee of relevant information underlying their October 2007 projections upon which independent financial advisory firm Valuation Research Corp relied in giving a solvency opinion.

Junior bondholders have been hoping to find evidence that would lead to the disallowing of billions of dollars of senior claims.

Klee, however, said he did not find any credible evidence against the large stockholders, lead banks, the financial advisers or the Zell Group.

A representative for junior bondholders was not immediately available to comment.

As part of the leveraged buyout, Tribune assumed some $3.6 billion in debt in what were known as Step Two transactions.

"It is somewhat likely that a court would conclude that the Step Two Transactions constituted intentional fraudulent transfers and fraudulently incurred obligations," Klee said in the report.

Still, "other aspects of management's projections, while aggressive, do not support the conclusion that the senior financial management at Tribune prepared them in bad faith," the report said.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

(Reporting by Sakthi Prasad in Bangalore and Chelsea Emery in New York; Editing by Lisa Von Ahn)

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Examiner sees signs of dishonesty in Tribune sale (Reuters)

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