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Tribune Bondholders Unhappy With Zell Takeover

Tribune Co. bondholders have asked a U.S. bankruptcy judge to let them investigate Sam Zell's 2007 buyout of the newspaper-and-television chain. The filing calls the $8.2 billion transaction a "fraudulent conveyance" that left Tribune insolvent from the onset of the 2007 deal. It accuses senior lenders led by J.P. Morgan Chase of completing a leveraged buyout they should have known would push the company into bankruptcy.

The filing will seek to slow or nullify an advancing plan for Tribune to exit from bankruptcy protection that calls for J.P. Morgan, Merrill Lynch and other banks to get nearly all of Tribune in return for them forgiving about $8 billion in debt. In contrast, bondholders would likely receive only a sliver of new equity under the deal. The bondholders seeking to investigate Zell's buyout represent more than 18% of the company's bond debt. They are requesting investigation centers around some $1.26 billion in notes issued between 1992 and 1997.

The move by Tribune's bondholders could become common in the months ahead, as many big leveraged buyouts collapse into bankruptcy. Looking for leverage in negotiations, creditors are trying to pin blame on company managements, as well as the financial institutions that funded the deals.

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