Excerpts: JPMorgan Called Tribune Debt Distressed Prior to New Loans
- JPMorgan Chase & Co. lowered its internal rating on Tribune Co.’s debt, labeling it distressed months before arranging new loans that funded the newspaper publisher’s 2007 buyout, e-mails made public in court show.
- Miriam Kulnis, a manager in JPMorgan’s distressed-debt unit, said in court testimony today that bank officials were discussing Tribune’s solvency before they finished setting up a second round of loans. Chicago-based Tribune filed for bankruptcy in December 2008, one year after the leveraged buyout led by real estate billionaire Sam Zell was completed.
- “It is no secret that we were concerned about this company’s solvency,” Kulnis said in U.S. Bankruptcy Court in Wilmington, Delaware. Kulnis said she couldn’t recall some details about the rating.
- U.S. Bankruptcy Judge Kevin J. Carey will decide whether to approve the settlement or allow pre-buyout creditors to pursue claims against JPMorgan and the lenders in a lawsuit. Pre-buyout noteholders, lead by Aurelius Capital Management LP, claim the lawsuit may yield $1.57 billion if settled for its true worth.
- JPMorgan Chase Bank NA uses a number system to rank debt on a scale of 1 to 10, best to worst. In July 2007, after 52 percent Tribune’s shareholders sold their stock for $39 a share, JPMorgan changed its rating on Tribune’s debt from 5- to 6+, Mitchell P. Hurley, an attorney for the noteholders, said in court, citing bank e-mails. He said a rating of 6 is considered distressed and a 7 requires the bank to report the debt.
- The day after the leveraged buyout closed in December 2007, using a total of about $10 billion of loans for the first and second stages of the deal, Kulnis sent an e-mail to a colleague asking if Tribune should be rated a 7.
- The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).