Deal to Get Tribune Co. Out of Chapter 11 Collapses

So much for the hope of a relatively quick and painless exit from bankruptcy for Tribune Co. A reorganization plan that would have turned over control of the Chicago-based media conglomerate to a group of lenders that includes JP Morgan Chase & Co. has reportedly fallen apart after an independent examiner's report prompted creditors to reassess the strength of their claims.

Now Tribune must scramble to come up with a new plan that will satisfy all relevant parties if it's to avoid lengthy litigation that could delay its emergence from Chapter 11 indefinitely. Until recently, that was a relatively simple task, with the company's management holding an exclusive right to propose a restructuring plan. But that right expired earlier this month, leaving open the possibility of competing plans, each with its own faction of supporters.

The present mess stems from 2007, when real estate mogul Sam Zell executed a $8.2 billion buyout of Tribune Co., whose properties include the Chicago Tribune, Los Angeles Times and Baltimore Sun. The massively-leveraged acquisition was finalized in December of that year; by December 2008, Tribune was filing for bankruptcy.

The rapidity of the company's collapse led to fraud allegations from former employees (whose retirement funds were wiped out) and bondholders alike. An independent examination authorized by the bankruptcy court vindicated those allegations to some extent, saying that a large chunk of the financing behind the deal was tainted by fraud, and an independent assessment of the company's health obtained as a precondition of the deal's closing was deeply flawed.

Those findings gave new hope to parties who would have seen their stakes wiped out by the reorganization plan that, until today, enjoyed consensus. Tribune has said it will file an amended proposal by Aug. 27, and threatened its own lawsuits if its reorganization plan is opposed.