Tribune Creditors Sue JPMorgan Over Loans for Leveraged Buyout

A group of Tribune Company creditors sued the banks behind the publisher's 2007 leveraged buyout, claiming the $8 billion in loans they arranged for the deal doomed the company to bankruptcy.

Wilmington Trust Co., the agent for bondholders owed $1.2 billion, filed the lawsuit yesterday in U.S. Bankruptcy Court in Wilmington, Delaware, against JPMorgan Chase Bank, Merrill Lynch Capital Corp., Citibank NA, Bank of America NA and Morgan Stanley & Co. The banks knew that the buyout "would render Tribune insolvent and, ultimately, drive it into bankruptcy," attorneys for the bondholders wrote in their complaint. The bondholders want to change the repayment order among Tribune's creditors so that they will be paid before those lenders. Tribune managers are trying to negotiate a reorganization that would avoid a long court battle over claims the buyout was a so-called fraudulent transfer that left the Chicago-based company insolvent and harmed junior creditors. Lower-ranking creditors claim the buyout was a fraudulent transfer because it loaded billions of dollars of debt onto Tribune's newspapers, television stations and other operations without giving them any value in return.