From left: Elisa Hyder and Rudolph J. DiMassa Jr. of Duane Morris.

Introduction

In In re Tribune, 972 F.3d 228 (3d Cir. 2020), the U.S. Court of Appeals for the Third Circuit affirmed the confirmation of Tribune Co.'s Chapter 11 plan. In so doing, the court identified certain principles to be applied when determining whether a plan unfairly discriminates against a dissenting class of creditors. In particular, the court established a new eight-step analysis to be applied in "cramming down" such a dissenting class pursuant to Section 1129(b)(1) of the Bankruptcy Code.

Factual Background

Tribune, the largest media conglomerate in the country, filed for bankruptcy in 2008 and proposed a Chapter 11 plan that separated its various unsecured creditors into distinct classes. Under the plan, certain senior noteholders (whose unsecured claims totaled over $1 billion) comprised creditor "Class 1E," and certain other unsecured creditors constituted "Class 1F." Pursuant to Tribune's prepetition loan agreements, Tribune and its lenders agreed that certain senior obligations would be satisfied in full before any other unsecured creditor would receive payment on account of its debt. The plan provided that both Class 1E and Class 1F creditors were to receive 33.6 percent of their outstanding claims. The senior noteholders objected, arguing that the allocation of payments to Class 1F under the plan violated Tribune's subordination agreements and unfairly discriminated against them as Class 1E creditors.

The U.S. Bankruptcy Court for the District of Delaware examined section 1129(b)(1) of the Bankruptcy Code, the "cramdown provision," to determine whether it could confirm Tribune's plan over the senior noteholders' dissent. The bankruptcy court first concluded that the senior noteholders' claims and a portion of Class 1F's claims qualified as senior obligations. Accordingly, and pursuant to the parties' prior stipulations, were the prepetition subordination agreements to be strictly enforced, the senior noteholders' recovery would have been 34.5%, as compared to the 33.6% recovery they would actually receive under the plan. The court concluded that the difference between Class 1E's desired and actual recovery—nine-tenths of a percentage point—was immaterial, and confirmed the plan over Class 1E's objection. The U.S, District Court for the District of Delaware affirmed the decision of the bankruptcy court, and the senior noteholders appealed that decision to the U.S. Court of Appeals for the Third Circuit.