By AP Business Writer
updated 5/10/2010 3:49:35 PM ET 2010-05-10T19:49:35

The judge in the Tribune Co.'s Chapter 11 case appointed an independent examiner on Monday to review the 2007 leveraged buyout of the media conglomerate and the potential claims arising from it that might be brought on behalf of the bankruptcy estate.

Judge Kevin Carey approved the U.S. trustee's selection of Kenneth Klee, a California bankruptcy lawyer and law professor at UCLA, to review what is perhaps the core issue in Tribune's bankruptcy.

"We have about as sophisticated an examiner here as you can get. ... I don't think he'll miss anything," Carey said.

Despite the approval of Klee's appointment, attorneys in the case were still wrangling over whether and how information given to him by parties in the case should be considered confidential or privileged.

"I feel that I would be hamstrung not being able to use confidential documents," Klee told the judge, noting that almost every document produced in the bankruptcy case has been labeled confidential.

Carey gave Klee the authority to meet with whomever he wishes without inviting other parties, and to share privileged information with outside parties if need be.

The judge left open the possibility of another hearing Tuesday if attorneys were unable to reach final agreement on how the examination will proceed.

Klee's primary focus will be the buyout, which was engineered by real estate mogul Sam Zell and left Tribune with a crushing debt load.

Tribune, which owns the Los Angeles Times, Chicago Tribune, The (Baltimore) Sun and other dailies, along with 23 TV stations, filed for bankruptcy protection in December 2008 because of dwindling advertising revenue and a debt load of $13 billion, much of it stemming from the buyout.

A group of bondholders represented by Wilmington Trust Co. sued JPMorgan Chase and other banks that financed the buyout in March, claiming they knew that the resulting debt load would leave Tribune insolvent. The bondholders argue that the deal was fraudulent because it loaded up Tribune with too much new debt that was used to cash out Tribune stockholders. They asked in the lawsuit that the banks' secured claims be disallowed, or at least paid only after the bondholders' unsecured claims are satisfied. Typically, secured claims get higher priority.

In addition to the buyout itself, Klee will analyze whether the bondholders violated bankruptcy court rules and should be penalized for filing their lawsuit and improperly disclosing confidential information in doing so.

Carey confirmed that Klee will not be charged with reviewing a proposed settlement of potential claims from the buyout that Tribune reached with certain creditors and which is the foundation of its proposed reorganization plan. Parties to the settlement include Centerbridge Partners, which leads a group owning outstanding senior bond debt and would get a 7.4 percent stake in the reorganized company. JPMorgan and distressed-debt specialist Angelo, Gordon & Co., who would be among the new owners of the company, also agreed to the settlement, as did Tribune's committee of unsecured creditors.

In his proposed work order, Klee noted that his findings may have an impact on the court's consideration of the settlement, but that he did not think it was his responsibility to investigate or comment on it.

"In a sense, I'm sure the court would appreciate his view," the judge said, adding that Klee's report, which is due by July 12, could very well provide "useful information."

With the possibility of factions maneuvering for advantage in litigation that either already has been filed or likely will be, Carey rejected Wilmington Trust's suggestion that documents provided to Klee by parties in the case be shared with all other parties.

"I don't think it's at all appropriate for copies to be served to other parties," the judge said. "His role is to make a report to the court, whom he serves."

Carey also ruled that that when Klee and his financial advisers talk with the financial advisers for one group, they do not have to invite financial advisers from a competing party.

"He can decide to invite whomever and in whatever combination he thinks in order to fulfill his responsibilities," the judge said. "I don't think its necessary that the examiner share that information with others as it is being developed."

Klee noted that parties in the case would be reluctant to share information with him if rivals were allowed to be present at every meeting.

"We are very, very sensitive to the fact that this case is heavily contested," he said.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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