In re Tribune Company

Case Type:
Case Status:
18-2909 (3rd Circuit, Aug 26,2020) Published
Section 1129(b)(1) of the Bankruptcy Code supplants strict enforcement of subordination agreements among creditors, and reduction of less than one percent in the recovery to a dissenting class did not unfairly discriminate against such class under Section 1129(b)(1) by allocating some funds to unsecured creditors that would otherwise should have gone to senior noteholders had the subordination agreements been strictly enforced.
Procedural context:
Plan of reorganization in Tribune was confirmed by the Bankruptcy Court over the objection of a class of senior noteholders, claiming that the plan violated the Code by not fully enforcing existing subordination agreements through the provisions of Section 510(a) in the Code, or, alternatively, the allocation of subordination payments to creditors not entitled to the benefits of the subordination agreements discriminated against the senior noteholders. The district court and the circuit court affirmed the bankruptcy court's decision confirming the plan.
The facts revolved around the debt structure of Tribune before and after the leveraged buyout (LBO) that eventually led to its bankruptcy. Certain Senior Noteholders held approximately $1,29 billion of Tribune debt at the time of the bankruptcy filing. Covenants in the Senior Notes' indentures require that they are paid before any other debt incurred by the company. A second tranche of unsecured debt were the so-called "Phones Notes" whose indenture provided that they are subordinated in payment to all "Senior Indebtedness" of Tribune, which included the Senior Notes. At the time of the LBO, a third tranche of unsecured debt, the so-called EGI Notes, was issued, and these notes were also subordinated to all "Senior Obligations." Another layer of Tribune's unsecured debt included the folliowing: $150.9 million "Swap Claim" (tied to the termination of the interest rate swap agreement to offset the rate exposure from the LBO); $105 million of claims by Tribune Media Retirees, and $8.8 million of trade and miscellaneous creditors. The Plan organized Tribune's unsecured creditors into distinct classes. The Senior Noteholders, which comprise Class 1E, argued that the Plan favored Class 1F, comprising the Swap Claim, the Retirees, and the trade creditors. The Plan paid both Class 1E and 1F creditors 33.6% of their outstanding claims from the initial distributions under the Plan. Those payments included monies from the subordination of the Phones and EGI Notes. The Senior Noteholders objected to the Plan. They argued that it allocated funds from the subordinated Phones and EGI claims to Class 1F that should have been paid to the Senior Noteholders as the sole beneficiaries of the subordination agreements.
Ambro, Krause, and Bibas

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