Tribune’s Senior Noteholders Lose Battle to Undo Bankruptcy Plan

The Tribune Co.‘s senior noteholders can’t rely on their subordination agreements with other creditors of the bankrupt media conglomerate to recover more under its Chapter 11 plan, the Third Circuit ruled.

The subordination agreements, which provided that the senior noteholders would be paid first, don’t need to be strictly enforced for a court to confirm a “cramdown” bankruptcy plan, the U.S. Court of Appeals for the Third Circuit said Wednesday. Cramdown plans are reorganization and liquidation plans that are confirmed by bankruptcy courts despite objections by entire classes of creditors.

The appeals court’s ruling upheld a finding by the U.S. District Court for the District of Delaware that the bankruptcy court properly approved Tribune’s plan.

The lower courts took a “pragmatic approach” and “reached the right result,” Judge Thomas L. Ambro wrote for the appeals court. The bankruptcy code, at 11 U.S.C. Section 1129(b)(1), doesn’t require courts to strictly enforce subordination agreements in a cramdown situation, he said.

Creditor Battle

The case involves a battle among the creditors of Chicago-based Tribune Co., which owned newspapers such as the Chicago Tribune and Los Angeles Times. The company filed for bankruptcy in 2008 and exited in 2012.

The company’s senior noteholders, who claimed they were owed $1.8 billion when the company filed for bankruptcy, didn’t accept the plan that had been accepted by other creditors. The bankruptcy court confirmed the plan in 2012 despite the vote.

The senior noteholders argued that the reorganization plan took away their rights by not strictly enforcing the subordination agreements. The confirmed plan, which bound the senior noteholders to its terms, instead gave them distributions equal to similar creditor classes.

Judges Cheryl Ann Krause and Stephanos Bibas joined the decision.

Robbins Russell Englert Orseck Untereiner & Sauber represented the Delaware Trust Company. McCarter & English represented Deutsche Bank Trust Company Americas. The trust companies represented the senior noteholders’ interests. Jones Day, Sidley Austin, and Cole Schotz represented Tribune.

The case is In re Tribune Co., 3d Cir., No. 18-2909, 8/26/20.