Bondholders left holding the bag after the bankruptcy filing by the Tribune Co. last year are suing the banks that financed the $8 billion deal, saying the loans they provided made the company insolvent from the start, the Chicago Tribune reported.
The agent for bondholders sitting on $1.2 billion in Tribune debt have filed suit in U.S. Bankruptcy Court against JP Morgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS), alleging the banks knew the buyout would force Tribune into bankruptcy. The bondholders hope to change the order of repayment in the bankruptcy proceedings, so they are paid before the major banks.
Tribune filed for bankruptcy last year under the weight of the crushing debt payments taken on by billionaire real estate developer Sam Zell, who borrowed $8.6 billion to take over Tribune in December 2007.
Creditors allege that the loans constitute a "fraudulent transfer" because the company foisted billions in debt onto the company's newspapers and television stations without offering any value in return.