The court-appointed examiner investigating Tribune Co's bankruptcy said he found some evidence of dishonesty in the 2007 leveraged buyout of the media company by real estate developer Sam Zell.

In the document summarizing his findings, bankruptcy examiner Kenneth Klee said Tribune did not act forthrightly in getting an independent opinion about the company's solvency. He also said senior management did not adequately discharge their duties in preparing financial projections.

Klee did not mention any names.

The company declined to comment on the report saying only in a letter to employees it believed its restructuring plan remained the best way to resolve creditor disputes and it was optimistic it could emerge from bankruptcy by the end of the year.

Since much of the more than 700-page document remains redacted, including the analysis on which the examiner bases many of his conclusions, we think it is premature to comment further about the report, the company said in the letter, which was also sent to Reuters.

Tribune's businesses include the Chicago Tribune and Los Angeles Times newspapers, as well as television stations such as superstation WGN and WPIX-TV in New York. The company tumbled into bankruptcy after Zell led an $8.2 billion takeover, which saddled it with billions of dollars of debt.

Klee had been tapped to investigate whether real estate developer Zell's leveraged buyout of Tribune left the company insolvent.

Klee said he found evidence that Tribune's senior financial management did not apprise the company's board and special committee of relevant information underlying their October 2007 projections. Independent financial advisory firm Valuation Research Corp relied on that information when it gave a solvency opinion.

Junior bondholders have had a particular interest in the examiner's findings, hoping to find evidence that would lead to the disallowing of billions of dollars of senior claims as Tribune's restructuring plan proposes turning over the company to the lenders who funded the buyout, leaving junior bondholders with nothing.

Klee, however, said he did not find any credible evidence against the large stockholders, lead banks, the financial advisers or the Zell Group.

A representative for junior bondholders was not immediately available to comment.

As part of the leveraged buyout, Tribune assumed some $3.6 billion in debt in what were known as Step Two transactions.

It is somewhat likely that a court would conclude that the Step Two Transactions constituted intentional fraudulent transfers and fraudulently incurred obligations, Klee said in the report.

Still, other aspects of management's projections, while aggressive, do not support the conclusion that the senior financial management at Tribune prepared them in bad faith, the report said.

A related story on Tribune loan pricing can be found here [nRLP19286a]

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

(Reporting by Sakthi Prasad in Bangalore and Chelsea Emery in New York; editing by Lisa Von Ahn and Andre Grenon)

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