-- and the unsustainable debt burden it imposed on a business already in asecular decline -- undoubtedly caused the Debtors’ demise. The architects of the LBO nowconcede that the transaction was a “mistake” based on assessments of the Debtors’ business thatwere “too optimistic.”
Tribune commenced these chapter 11 cases within a year of the LBO,leaving billions of dollars of pre-LBO debt unpaid. The LBO did not provide the Debtors withreasonably equivalent value in exchange for the $11.2 billion in secured debt they incurred: themajority of the LBO debt served only to cash out former shareholders for no consideration at all.Accordingly, the LBO and the obligations incurred in connection therewith are
fraudulent transfers within the meaning of sections 544 and 548 of the Bankruptcy Code,applicable state law, and Third Circuit precedent.Bankruptcy Rule 2004 was designed specifically for purposes of examining the acts,conduct, property (
valuable claims), liabilities, and financial condition (
insolvency) of debtors or any matter affecting the administration of a debtors’ estates and any other matterrelevant to chapter 11 cases. Moreover, Rule 2004 and section 343 of the Bankruptcy Code
Capitalized terms in this Preliminary Statement have the meanings ascribed to them
See Zell Calls Tribune Co. Buy A ‘Mistake’
, Boston Globe, April 16, 2009, http://www.boston.com/ ae/media/articles/2009/04/16/zell_calls_tribune_co_buy_a_mistake.
Andrew Ross Sorkin,
Workers Pay for Debacle at Tribune
, New York Times, Dec. 8, 2009, http://www.nytimes.com/2008/12/09/business/media/ 09sorkin.html?scp=1&sq=workers%20pay%20for%20debacle%20at%20tribune&st=cse (“Mr. Zell literallymortgaged the future of Tribune’s employees to pursue what one analyst .. . . called ‘a childhood fantasy.’”);EmilyThornton, Michael Arndt, and Ronald Grover,
Sam Zell’s Deal from Hell
, Business Week, July 30, 2008,http://www.businessweek.com/magazine/content/08_32/b4095000408330.htm (quoting Zell discussing Tribune’smany operating subsidiaries: “When we first undertook this project, we viewed Tribune as 60 ways to get lucky . . ..” and subsequently recognizing “the reality of [Tribune’s] significant debt levels”);
Is Tribune’s Leveraged ESOPWorth The Risk?
, New York Times, April 3, 2007, http://dealbook.blogs.nytimes.com/2007/04/03/is-tribunes-leveraged-esop-worth-the risk/?scp=1&sq=Is%20Tribune%E2%80%99s%20Leveraged%20ESOP%20Worth%20The%20Risk&st=cse (noting transaction “comes with some big risks ….Tribune will be taking on an especially heavy debt load …. A Fitch analyst suggested the proposed deal would leavethe company with ‘little room to withstand a significant economic downturn’”). A copy of these articles is attachedto the Declaration of David S. Rosner, dated August 26, 2009 (the “Rosner Decl.”) as Exhibit A.