A new twist in Tribune odyssey

A hedge fund heav­ily in­vested in the me­dia firm’s debt could make me­di­a­tion dif­fi­cult.

Los Angeles Times - - Business - Michael Oneal mdoneal@tribune.com

When U.S. Bank­ruptcy Judge Kevin Gross stepped up to me­di­ate a set­tle­ment in Tribune Co.’s frac­tious Chap­ter 11 case ear­lier this month, most ob­servers gave him slim odds of suc­cess.

Tribune and its cred­i­tors had al­ready spent nearly two years hag­gling and fil­ing le­gal briefs in the case, and the only thing the es­tate had to show for it was more than $180 mil­lion in pro­fes­sional fees through Au­gust.

Since then, the odds of an easy set­tle­ment have prob­a­bly got­ten worse, ac­cord­ing to peo­ple fa­mil­iar with the sit­u­a­tion who asked for anonymity be­cause they aren’t au­tho­rized to speak pub­licly.

If any­thing, these peo­ple say, the sides were grow­ing fur­ther apart on the eve of me­di­a­tion talks, which be­gin Sun­day in Delaware. What’s more, ne­go­ti­a­tions are likely to fur­ther be com­pli­cated by the emer­gence of a pug­na­cious New York hedge fund called Aure­lius Cap­i­tal Man­age­ment as a ma­jor player.

One mea­sure of the di­min­ished hopes for a speedy res­o­lu­tion is the fad­ing ur­gency among se­nior cred­i­tors to round up new man­age­ment for Tribune, which owns the Los An­ge­les Times, the Chicago Tribune, KTLATV Chan­nel 5 and other me­dia prop­er­ties.

A month ago, cred­i­tors led by hedge fund An­gelo, Gor­don & Co. had been talk­ing with for­mer Walt Dis­ney Co. Chief Ex­ec­u­tive Michael Eis­ner and Com­cast Corp. ex­ec­u­tive Jeff Shell about run­ning the new Tribune as chair­man and CEO, re­spec­tively. But those talks have with­ered, in­sid­ers said, amid the un­cer­tainty sur­round­ing the com­pany’s fu­ture.

A ma­jor fac­tor driv­ing that un­cer­tainty is the in­creased pres­ence of Aure­lius, which is well known in the bank­ruptcy world for its liti­gious, fight-for-ev­ery-dime style of money-mak­ing. The firm has been steadily build­ing a po­si­tion in a ju­nior class of Tribune bonds. But a lit­tle over a week ago, peo­ple close to the mat­ter said, it bought out a large por­tion of a stake held by Cen­ter­bridge Part­ners, an­other dis­tressed-in­vest­ment hedge fund that un­til then had been the most pow­er­ful ju­nior cred­i­tor in the case.

Aure­lius tends to buy into the un­se­cured ju­nior bonds of a founder­ing com­pany at cents on the dol­lar and then un­leash an ag­gres­sive le­gal strat­egy to boost the re­turns those bonds get as the case is re­solved. In that re­spect, it is not so dif­fer­ent from the many other dis­tressed-debt hedge funds that have swept into Tribune se­cu­ri­ties since the Chicago-based me­dia com­pany filed for Chap­ter 11 pro­tec­tion in De­cem­ber 2008. What sets Aure­lius apart, ob­servers say, is its stub­born will­ing­ness to wage bat­tle.

“We can as­sume that any [me­di­a­tion] set­tle­ment will not be ac­cept­able to Aure­lius,” said one source close to the talks.

Cen­ter­bridge is hardly a pushover. It got into the case much ear­lier than Aure­lius and was the chief ag­i­ta­tor for press­ing le­gal ac­tion against the se­nior len­ders and oth­ers who par­tic­i­pated in Chicago real es­tate mag­nate Sam Zell’s 2007 lever­aged buy­out of Tribune, claims that now lie at the cen­ter of the case.

But last spring Cen­ter­bridge sig­naled its will­ing­ness to com­pro­mise, join­ing a set­tle­ment of the buy­outre­lated charges bro­kered by Tribune man­age­ment, a deal that col­lapsed in Au­gust. Few ex­pect Aure­lius to be as pli­ant.

One rea­son for pes­simism is the ap­par­ent eco­nom­ics of Aure­lius’ po­si­tion. The firm won’t com­ment but it is clear from the tim­ing of the Cen­ter­bridge pur­chase that it will have to ex­tract a new set­tle­ment price well above the failed one if it is to profit on a large piece of its in­vest­ment.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.