Tribune squeezed by bondholders

It probably won't hold up the sale to Sam Zell, but three unidentified hedge funds that own 55 percent of a Tribune bond issue are making waves. Well, let's be precise: They're after a quick $400 million. There's no real reason why the funds are entitled to all that money, other than that their people were smart enough to send default notices to Tribune, saying that Zell's plans to sell the Cubs would violate the terms under which the company's debt was sold. So they want to be repaid immediately.

We're talking serious fine print here - as explained by Bloomberg News, Section 10.05 of the bond indenture allows Tribune (the LAT parent) to discontinue or dispose of operations if the sale is "desirable'' for the company and "not disadvantageous'' to bondholders. Getting rid of the Cubs might not be considered "desirable" or "not disadvantageous." The funds also challenge last year's sale of three Tribune TV stations and Zell's plan to increase its debt load. Of course it's a shakedown (I love having this right after ther "Sopranos" post), but they do have a point about higher debt loads adding risk in the event that Tribune goes kablooey. Tribune says the funds don't have the authority to make a default claim.

"If you're a hedge fund, that's how you create value, buying up a large position and then using it to swing your weight,'' said Eric Tutterow, a managing director at Fitch Ratings in Chicago. They'll do what they have to do to squeeze additional value out of the situation.''


It's a tactic bondholders have successfully used before. Blackstone Group LP paid $953 million to redeem debt earlier this year, $127 million more than it first offered, after getting attacked by investors in the $20 billion leveraged buyout of Equity Office Properties Trust. American International Group Inc. is leading an effort to squeeze Tyco International Ltd. for an additional $95 million before approving its breakup plan.


"The normal routine is they negotiate and come to an agreement on the value of their claim and settle for something in the middle,'' said Fitch's Tutterow. "It generally doesn't hold up a transaction.''

More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent stories:
Letter from Down Under: Welcome to the Homogenocene
One last Florida photo
Signs of Saturday: No refund
'I Am Woman,' hear them roar
Bobcat crossing
Previous story: Betting on Tony Soprano

Next story: Stocks hammered again

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner

Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook