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Bankruptcy Court Addresses Disputes Over Allocation and Priority of Distributions in Proposed Third Amended Plan of Reorganization

On April 9, 2012, Judge Kevin J. Carey of the United States Bankruptcy Court for the District of Delaware (the “Court”), issued a memorandum opinion that resolved multiple disputes over the allocation of distributions (the “Allocation Disputes”) among certain classes of claims in the proposed Third Amended Plan in In re Tribune Company, et al., Case no. 08-13141.

The Third Amended Plan includes an “Allocation Dispute Protocol” that proposes to establish reserves for distributions to holders of allowed claims in classes that may be affected by unresolved intercreditor disputes, specifically with respect to holders of “PHONES Notes” and the “EGI Notes.” The Court determined that it was necessary to resolve the Allocation Disputes prior to plan solicitation and voting so that the parties impacted by the Court’s ruling would know definitively where they fell in the priority scheme and could then cast their votes accordingly. Additionally, resolution of the Allocation Disputes would reduce the need for reserves. The Court noted that his holdings on the Allocation Disputes were subject to, conditioned upon, and for the purpose of obtaining confirmation of the Third Amended Plan or a substantially similar chapter 11 plan.

Addressing the allocation disputes related to the PHONES Notes, the Court held that the subordination provisions of the PHONES Indenture are applicable to the distributions of settlement proceeds under the Third Amended Plan and proceeds from the Creditors’ Trust. Regarding the EGI Notes, the Court held that, similar to the PHONES Notes, the settlement proceeds of the Third Amended Plan and distributions of Creditors’ Trust and Litigation Trust proceeds were subject to the subordination provisions set forth in the EGI Subordination Agreement. In contrast to the PHONES Notes, the Court held that the issue of whether beneficiaries of the subordination provisions in the EGI Subordination Agreement are entitled to post-petition interest prior to payment of the EGI Notes was not ripe for determination.

The Court also determined that the Third Amended Plan did not unfairly discriminate against Senior Noteholders by allowing other unsecured creditors to reap the benefits of the PHONES and EGI subordination provisions. In connection with these holdings, the Court established the claim amount for PHONES Noteholders and held that the beneficiaries of the PHONES Indenture subordination provisions were not entitled to receive post-petition interest prior to the PHONES noteholders themselves receiving payment for their claims. Finally, the Court determined that the EGI Notes are junior in priority to the PHONES Notes.

A copy of the Court’s opinion is available here.

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