By Tom Hals

WILMINGTON, Del. (Reuters) - The bankrupt
publisher of The Chicago Tribune and Los Angeles Times said
Tuesday it reached an agreement with two hedge funds that would
clear the way for it to end nearly two years in Chapter 11.

The Tribune Co's bankruptcy has been mired in a battle
among creditors over who is to blame for the company's 2008
failure, which came less than year after real estate developer
Sam Zell completed a deal to take control of the company using
piles of debt.

Tribune said in a statement it agreed with Oaktree Capital
Management and Angelo, Gordon & Co LP on a plan of
reorganization that would leave the two hedge funds with
significant ownership stakes in the company.

The plan also would allow Tribune, which also owns nearly
two dozen television stations, to exit bankruptcy before
resolving a complex web of legal claims.

The deal would need approval of Delaware's bankruptcy
court, and the official committee of unsecured creditors in the
bankruptcy were quick to announce their opposition.

Tribune's statement only mentioned the support of the two
funds, although the mediator who oversaw the talks among
creditors indicated he hoped for broader backing.

"The mediator is confident that the proposed plan will lead
to additional constructive discussions between and among the
debtors and other parties," said a court filing from Kevin
Gross, the Delaware bankruptcy judge who acted as mediator. He
said mediation would continue.

Tribune said the two hedge funds hold a "significant"
amount of the $6.6 billion in loans stemming from the first
part of the two-step deal that put Zell in control.

Those loans would be swapped for stock in the company, as
well as new debt and cash, when it emerges from bankruptcy.

For Angelo, Gordon, the deal deepens its investment in
newspapers, adding to its stakes in the publishers of the
Philadelphia Inquirer and Minneapolis StarTribune.

LITIGATION CONTINUES

Tribune's senior bondholders would receive a total
distribution of $300 million, or about 23 percent of their
claim amount, in cash.

In addition, Tribune said the bondholders would receive a
portion of a trust that will be set up to pursue legal action
over the second part of Zell's takeover deal.

An examiner reported in July that the second part of Zell's
takeover would likely be found by a judge to be an "intentional
fraudulent conveyance."

Tribune said the litigation trust will allow an independent
trustee to pursue those claims of fraudulent conveyance, which
take aim at $2.1 billion of loans used to finance the second
half of the takeover.

"We remain confident that additional settlements will be
reached," said Don Liebentritt, Tribune's chief restructuring
officer, in a statement.

The official committee of unsecured creditors said it
opposed the settlement and noted that the hedge funds are
targets of litigation that the committee plans to pursue.

"The Committee is disappointed that Tribune and some senior
lenders have reached an agreement that does not provide fair
value to all creditors," said a statement from the committee.

The committee had supported a settlement reached earlier
this year, which appeared to treat them better than the
proposal announced Tuesday.

That earlier deal did little to halt the legal fights and
eventually the deal collapsed following the examiner's report.

According to the mediator's outline, the settlement
Tuesday appeared relatively similar for senior creditors to the
deal Tribune struck earlier this year with Angelo, Gordon & Co,
JPMorgan Chase & Co and Centerbridge Partners.

Senior bondholders are recovering 23 percent in cash under
Tuesday's proposal, less than the 35 percent under the previous
settlement which collapsed, but their recovery could increase
depending on the outcome of the litigation trust.

Under both settlements, $1.6 billion of bridge loan claims
and more than $750 million of junior bonds will be wiped out.
Under Tuesday's settlement, both those claimants could get some
recovery from the litigation trust.

Tribune declined to comment beyond the statement. Attorneys
for senior bondholders, junior bondholders and bridge loan
claimants did not immediately return a call for comment.

The case is In Re Tribune Co, U.S. Bankruptcy Court,
District of Delaware, No. 08-13141.
(Additional reporting by Chelsea Emery in New York; editing by
Carol Bishopric)