Tribune Bondholders Can Sue Shareholders for Over $8.2B

A bankruptcy court judge has cleared the way for Tribune Co. (TRBCQ) bondholders to file securities complaints in state court against ex-shareholders who made money from the 2007 leveraged buyout that is thought to have caused the media giant’s demise. They contend that for real estate magnate Sam Zell to raise the money to pay off the shareholders and gain control of the Tribune, the company ended up taking on level of debt that it could not sustain and which resulted in bankruptcy in 2008.

The bondholders claim that the 2007 buyout was made at their expense and they want to get back the over $8.2 billion that was paid out to ex-shareholders. Unfortunately, seeing as there are billions of dollars in secured debt, it is not likely that bondholders will recover all of the over $2 billion in notes that the media giant issued before the buyout unless creditors prevail in their lawsuits against shareholders, Zell, lenders, and other parties.

The bondholders needed to get permission to file their lawsuits outside the bankruptcy court. Led by Aurelius Capital Management, they say the action was necessary because the statute of limitations for pursuing such claims under state laws in Illinois and Delaware ends in June, when it will have been four years since the buyout. The bondholders are worried that Tribune, which is based in Illinois, won’t get out of bankruptcy by then. Possible securities lawsuit targets are the Robert R. McCormick Foundation, which sold $1.5 billion in company stock for a $963 million profit for the buyout and Stark Investments, a hedge fund that invested in Tribune.

Related Web Resources:
Tribune Bondholders Get OK To Sue, MyFOXla, April 26, 2011

Bondholders Can Sue Over Tribune, The Wall Street Journal, April 27, 2011

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