The Work

September 23, 2010 12:06 PM

Extra! Dying Newspaper Update: Chadbourne Safe! Philly Papers Auction Kicks Off!

Posted by Zach Lowe

A round-up of news from media bankruptcies that depress us to no end:

• Bankruptcy lawyers probably will be happy to know the judge overseeing the Tribune Co. bankruptcy ruled Wednesday that Chadbourne & Parke can stay on as lead creditors committee counsel during crucial upcoming mediation sessions, according to Bloomberg and lawyers who attended Wednesday's hearing in Delaware. A group of dissident creditors, represented by McCarter & English and Friedman Kaplan Seiler & Adelman had asked Judge Kevin Carey to disqualify Chadbourne from the mediation sessions, claiming the firm is too close to a key group of banks.

Those banks, including JPMorgan Chase, Citigroup and Merrill Lynch, financed the disastrous 2007 leveraged buyout that sunk Tribune. Lower-ranking creditors want to sue those banks, which themselves are senior Tribune creditors. A successful suit could invalidate the banks' claims on the Tribune estate, giving more power to junior creditors, according to our prior reporting. The lower-ranking creditors argued that Chadbourne's work for those banks in other matters makes the firm unfit to lead the committee as it attempts to craft a new reorganization plan with Tribune and the company's counsel at Sidley Austin. They suggested Carey throw Chadbourne out and replace them with Zuckerman Spaeder, the creditor committee's special litigation counsel hired precisely because of Chadbourne's conflicts--conflicts Chadbourne has admitted openly in court papers. 

Carey rejected that request, meaning Chadbourne will maintain its lead role in mediation talks. The new talks are necessary because Tribune's initial reorganization plan, which would have handed substantial control of the company to the buyout lenders, lacks enough creditor support to pass. Whatever creditor support existed for the plan evaporated after a court-appointed examiner issued a report claiming the Tribune estate might have fraud claims against the banks and Tribune higher-ups (including Sam Zell). The creditors committee has already filed preliminary papers seeking permission to sue those parties. 

Chadbourne's Howard Seife, chair of the firm's bankruptcy department, declined comment when we reached him yesterday. Lawyers from McCarter & English and Friedman Kaplan did not immediately return messages. 

• Also in sad print media news: We're down from three to two bidders in the new auction for the Philadelphia Daily News and the Philadelphia Inquirer, according to The New York Times. The auction, which starts today, will be between the secured creditors (mostly hedge funds) who won the first auction and Raymond Perelman, the 93-year-old father of billionaire Ron Perelman, the NYT reports. The creditors won the initial auction with a $139 million bid but failed to hammer out new contracts with all 15 labor unions tied to the papers. One union held out, and that sent the parties back to court for a second auction. This time, the winning bidder will have to take on the papers no matter what, a new bidding condition which prompted the creditors' legal team at Akin Gump Strauss Hauer & Feld to ask if they could cut payouts to unsecured creditors in their new bid. 

That request did not sit well with Judge Stephen Raslavich, but the judge ultimately allowed bidders to structure bids with some flexibility, lawyers tell us. Proskauer Rose and Dilworth Paxson are representing the newspapers' parent company. Skadden, Arps, Slate, Meagher & Flom is representing the Perelman group.

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