• by Erik Sass  @eriksass1, June 28, 2011

Two groups of Tribune creditors have submitted rival reorganization plans to the U.S. bankruptcy court in Wilmington, Delaware, differing on the key issue of whether Tribune creditors should settle with JPMorgan or sue the bank for funding the Tribune buyout in 2007 even though it was doomed to insolvency.

The two plans -- one in favor of settling, the other in favor of suing -- will now be considered by U.S. bankruptcy judge Kevin J. Carey, whose decision could render a relatively quick end to legal proceedings, or extend them for many more months, or even years.

JP Morgan and its fellow lenders Angelo Gordon & Co. and Oaktree Capital Management LP all favor a settlement, which would probably come to around $488 million.

However, dissident creditors -- including investors that held bonds issued before the ill-fated buyout took Tribune private in 2007 -- said they could recover more money from the Tribune bankruptcy by suing JP Morgan and other senior lenders for an as-yet-unspecified amount.

Regardless of the outcome, JP Morgan and its allies would end up in control of the troubled newspaper publisher.

A number of lawsuits have already been brought by bondholders and previous Tribune employees against current and former management, as well as Tribune shareholders who profited from the buyout, which required the company to assume $8.2 billion in debt.

Many of the lawsuits allege that Tribune's former management and the buyout team (as well as some lenders and financial advisors) knew that the deal would end in insolvency ahead of time, and therefore constituted a "fraudulent conveyance."

In 2008 a class action suit was filed against Zell and his partners on behalf of 11,000 Tribune Co. employees. In September 2010, a committee of eight unsecured creditors outlined a number of areas where they might find a legal basis to sue not only Sam Zell, but also Tribune's current and previous board of directors, as well as Valuation Research Corp., a financial consulting firm that gave the stamp of approval for the buyout deal in October 2007.

Then in June of this year, a group of former high-ranking employees of the Tribune Co. and the former Times Mirror Co. (which published the Los Angeles Times before Tribune bought it) sued current Tribune shareholders to recover $109 million in retirement benefits they lost after the company went bankrupt. The defendants named in the case include the Robert R. McCormick Foundation, Chandler Family Trusts and the Cantigny Foundation.