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Stay Pending Appeal of Confirmation of Tribune Chapter 11 Plan Is Conditioned Upon the Posting of a $1.5 Billion Supersedeas Bond

August 24, 2012

In In re Tribune Company, et al., Case No. 08-13141 (Bankr. D. Del. Aug. 22, 2012), the Delaware Bankruptcy Court granted a motion for stay pending appeal of a plan confirmation order subject to the movants posting a $1.5 billion supersedeas bond. The opinion is noteworthy due to both the large amount of the required bond and the detailed analysis the Court adopted to calculate the amount of the bond.

Following the Court’s entry of four separate opinions concerning confirmation of a plan of reorganization,1 Aurelius Capital Management, LP (“Aurelius”), Law Debenture Trust Company of New York (“Law Debenture”) and Deutsche Bank Trust Company Americas (“Deutsche Bank,” and collectively with Aurelius and Law Debenture, the “Movants”) appealed and moved for a stay pending appeal to prevent the Debtors from consummating the DCL Plan until final resolution of the appeals.2

The Court addressed the four factors considered when determining whether to issue a stay pending appeal under Bankruptcy Rule 8005. With regard to the third factor, namely, whether a stay would cause substantial injury to non-moving parties with an interest in the proceeding, the DCL Plan Proponents argued that non-moving parties ─ the Debtors and their creditors ─ would be substantially harmed, and therefore, any stay must be conditioned upon the posting of a significant bond to protect the creditors. The DCL Plan Proponents presented evidence of five distinct types of harm that the Debtors would suffer upon the imposition of a stay: (a) brand erosion; (b) loss of strategic opportunities; (c) difficulty in recruiting and retaining talent; (d) continued administrative expenses; and (e) placing plan settlements in jeopardy. The Court agreed such harm could befall the Debtors and creditors. While it granted the requested stay, the Court conditioned the stay upon the posting of a bond.

The Court next addressed the appropriate amount of the bond. At the hearing on the stay motions, the DCL Plan Proponents offered three methodologies for calculating the bond amount. First, full protection from potential harm would require a bond equivalent to the Debtors’ approximate equity value upon emergence from bankruptcy ─ $4.515 billion. Second, the DCL Plan Proponents suggested a bond in the amount representing the approximately $3 billion difference between the previously determined distributable enterprise value of the Debtors and the estimate of the Debtors’ liquidation value. Third, the DCL Plan Proponents offered testimony supporting a bond set by taking into account each of the following five factors: (a) additional professional fees and administrative costs ($113 million); (b) lost opportunity costs incurred by non-moving creditors due to the delay in reinvesting anticipated cash distributions under the DCL Plan ($272 million); (c) lost opportunity costs incurred by non-moving creditors due to the delay in reinvesting anticipated free cash flow distributions after emergence from bankruptcy ($14 million); (d) harm caused by delay in the Debtors’ new senior secured term loan ($156 million); and (e) potential harm to non-moving creditors who are to receive equity under the DCL Plan, but whose equity holdings would be exposed to market volatility and other associated risks ($992 million).

This final factor, “downside market risk,” was supported by the testimony of the Debtors’ investment banker and financial advisor. It was described as an “equity put option” utilized in an attempt to quantify the specific and identifiable market risks and volatility. The Court declined to apply this methodology because it never has been adopted by any other court under similar circumstances. However, the Court did find that the sum of the first four components of the DCL Plan Proponents’ five-part test ($555 million) would not suffice to fully protect against harm to non-moving creditors during the period of any stay pending appeal. The Court held that the downside market risk described in the testimony offered by the DCL Plan Proponents was real and therefore the non-moving creditors were entitled to protection from it during the course of the appeals.

Because the Court could not definitively quantify this downside market risk for purposes of fixing a bond amount, it instead turned to the two other methodologies suggested by the DCL Plan Proponents to determine the amount of the bond ─ post-emergence equity value ($4.515 billion) and the difference between reorganization and liquidation value (more than $3 billion). The Court held that either of these alternative amounts could serve as a reasonable basis for fixing the amount of the supersedeas bond. However, given the DCL Plan Proponents’ presentation of evidence and argument in support of a $1.548 billion bond, the Court concluded that the appropriate amount of the bond was $1.5 billion. 

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The Tribune opinion contains a particularly detailed description of what constitutes harm that must be protected by a supersedeas bond and how to quantify that harm. It also demonstrates that the Delaware Bankruptcy Court will protect creditors’ interests by requiring a supersedeas bond, even if the amount of that bond must be very large.



1 The Debtors, the Official Committee of Unsecured Creditors, Oaktree Capital Management, L.P., Angelo Gordon & Co., L.P. and JPMorgan Chase Bank (collectively, the “DCL Plan Proponents”) sought confirmation of the Fourth Amended Joint Plan of Reorganization for Tribune Company (the “DCL Plan”).
2 The Movants later modified their request, seeking to stay consummation of the DCL Plan for a period of 180 days, with no supersedeas bond, subject to their right to request a further extension of such stay.

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