• by Erik Sass  @eriksass1, October 29, 2010

After a roller-coaster-like few months, Tribune is significantly closer to a deal that will allow it to exit bankruptcy -- but the company still has a ways to go, according to the Los Angeles Times, one of its flagship newspapers.

The main hurdle now is an impending legal challenge from a group of creditors, including Aurelius Capital Management. They continue to oppose the bankruptcy reorganization plan supported by other creditors.

Tribune Co. -- which also owns the Chicago Tribune, WGN in Chicago, and other media properties -- has been struggling in bankruptcy court for almost two years. The case has stalled over how to settle claims raised by junior bondholders that claim the Sam Zell buyout is a fraudulent conveyance, meaning it left the company insolvent from the start.

So far, Tribune has succeeded in lining up support from a majority of its senior creditors -- including Oaktree Capital Management, Angelo, Gordon & Co. and JPMorgan Chase, along with some unsecured creditors. But several key players (including Tribune bondholders) say they are planning to file competing bankruptcy reorganization plans by the deadline at midnight tonight.

According to LAT, these include Aurelius, which specializes in distressed debt; bridge loan lenders led by Wells Fargo Bank; and a group of senior creditors called the SoCal lenders.

The plan presented by Aurelius will call for placing all unresolved claims bearing on the bankruptcy in a litigation trust, allowing the company to exit bankruptcy without having to wait for the legal disputes between senior and junior creditors to be resolved -- a process that could take years.

Potential defendants in this planned litigation would include lenders and advisers who failed to investigate the company's finances when rendering their opinions, as well as directors and officers, and any shareholders who profited by the deal.

In September, Tribune handed over responsibility for formulating a new bankruptcy reorganization plan to a four-person committee drawn from the company's board of directors. The Delaware bankruptcy court also appointed a mediator, U.S. Bankruptcy Judge Kevin Gross, to oversee Tribune's negotiations with its various creditors.

However, Aurelius said this move was "too little, too late," as it left elements of the current management in control of the company and demanded that Tribune's management be replaced by a court-appointed trustee.

Earlier this month, Aurelius appeared to get its wish fulfilled, at least in part, with the sudden departures of chief innovation officer Lee Abrams, who resigned amid a wave of criticism for sending a controversial, off-color email to the entire company, and CEO Randy Michaels, who had his own history of inappropriate behavior.

The turmoil among Tribune's top ranks also comes just a few weeks after a scathing article by The New York Times' media columnist David Carr, in which Tribune employees complained about the "frat house" antics of the senior management team, assembled by Sam Zell following his ill-fated takeover in October 2007. Zell himself stepped down as CEO in December 2009.

The controversy surrounding Abrams' email was a high-profile example of the growing friction between the company's business and editorial sides since the takeover in 2007.

Under the new management, the business side has blurred the boundaries between advertising and editorial content at the Los Angeles Times with a series of front-page ads and front-page wraps, both in print and on the Web site. One such print ad provoked the Los Angeles County Board of Supervisors to send an open letter chastising the company and asking that it stop the practice.