On Wednesday, the Delaware bankruptcy court also appointed a mediator, U.S. Bankruptcy Judge Kevin Gross, to oversee Tribune's negotiations with its various creditors.
The handoff is essentially an admission of defeat by management, following the collapse of its proposed bankruptcy reorganization plan. Senior lenders, including JP Morgan Chase, withdrew their support for the plan after a court-appointed examiner found evidence that some of the key elements of the 2007 buyout may have been fraudulent.
The special committee formed from Tribune's board directors includes Jeffrey Berg, chairman of International Creative Management, Mark Shapiro, former CEO of Six Flags, Maggie Wilderotter, CEO of Frontier Communications, and Frank Wood, CEO of Secret Communications.
All four joined Tribune's board of directors after the ill-fated transaction to take the company private closed -- sparing them any taint from even indirect association with the deal.
In August, Kenneth Klee, the independent examiner appointed by the bankruptcy court to review the deal, filed a report that was critical of some aspects of the initial deal. Klee was investigating allegations brought by some bondholders that Tribune was doomed to bankruptcy from the start.
Although Klee found no evidence of wrongdoing on the part of the buyout team led by real-estate mogul Sam Zell, he said certain information he uncovered suggested that some individuals in the company's former management team may have known it was not financially viable, making it a "fraudulent conveyance."
His report included the revelation that at least one investment bank, Houlihan Lokey, refused to give the deal a stamp of approval by rendering a favorable "solvency opinion" in March 2007. Tribune management skirted the issue by simply taking the transaction to another firm, Valuation Research Corp., which agreed to render a favorable solvency opinion, allowing the buyout to move forward.
Klee's report also criticized VRC for failing to investigate the financial condition of the company more thoroughly. As a result, he warned that is was "somewhat likely that a court would conclude that the Step Two Transactions [when the company assumed $3.6 billion in debt] constituted intentional fraudulent transfers and fraudulently incurred obligation."
Klee's findings provided ammunition for junior bondholders trying to stop the bankruptcy reorganization plan proposed by Tribune's management. These bondholders, who would be compensated after senior lenders and therefore stand to receive little, allege that the entire deal was insolvent from the start and therefore a "fraudulent conveyance."
Two weeks ago, the Delaware bankruptcy judge canceled a vote on management's original reorganization plan scheduled for Friday, August 20, to give Tribune executives time to come up with a new course of action, possibly reaching an agreement with the dissident bondholders.
But the appointment of the special committee seems to indicate that the latest round of negotiations came up empty-handed.