By Tom Hals

WILMINGTON, Del. (Reuters) - Bankrupt newspaper
publisher Tribune Co said Tuesday it reached an
agreement with two hedge funds that would settle some claims
related to its 2007 leveraged buyout and clear the way for it
to exit Chapter 11.

Tribune's bankruptcy has been mired in a battle among
creditors over who is to blame for the company's 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 it agreed with Oaktree Capital Management and
Angelo, Gordon & Co LP to a plan of reorganization which would
leave the two hedge funds with significant ownership stakes in
the company.

The plan also would allow the owner of the Chicago Tribune,
Los Angeles Times and 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.

Tribune said the two hedge funds own 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.

Under the settlement, Tribune 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
takes 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.

Tribune declined to comment beyond the statement. Senior
and junior bondholders 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)