In connection with the chapter 11 case of Tribune Media Company (“Tribune”), on June 25, 2021, Judge Shannon of the United States Bankruptcy Court for the District of Delaware found that a claim filed by the Indenture Trustee under an Indenture relating to the PHONES Notes, which sought approximately $30 million in professional fees and costs, should only be allowed in the amount of $3 million.

The Court’s ruling was based in part on the terms of the Indenture and in part on the terms of the engagement letter between the Indenture Trustee and its legal counsel.

The Court noted that the Indenture Trustee’s right to payment of professional fees and costs derived from the Indenture, which provided that Tribune would reimburse the Trustee for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with the provisions of the Indenture (including reasonable compensation and disbursements of its counsel).

Separately, the Court noted that, pursuant to the terms of the engagement letter between the Indenture Trustee and it’s counsel, the Indenture Trustee’s liability for its counsel’s legal fees and expenses were limited to amounts received under a separate letter between the Indenture Trustee and certain holders of the PHONES Notes (“Directing Holders”), and that the Indenture Trustee was not responsible for advancing its own funds to satisfy its counsel’s invoices. Under that separate letter agreement, the Directing Holders agreed to pay up to $3 million for professional fees and expenses related to the Indenture Trustee’s exercise of its rights under the related Indenture.

Although the reorganization plan specified that Tribune Company was to “reimburse” the Indenture Trustee for costs incurred, the Court held that, by the terms of the engagement letter, the Indenture Trustee was not obligated to pay any fees and expenses of its counsel beyond the $3 million provided by the Directing Holders and, in effect, any amount exceeding $3 million could not be “incurred” by the Indenture Trustee and therefore the Indenture did not obligate Tribune to pay such amounts.

Judge Shannon’s decision is the latest in a contentious bankruptcy that began when Tribune Company filed for Chapter 11 bankruptcy in late 2008. As noted in the holding, the dispute over whether or not the Indenture Trustee can claim these fees has been deeply controversial and was “negotiated, mediated, and litigated up to the Third Circuit and back” before Friday’s decision.

The holding in this case underscores the importance of carefully reviewing the terms of each applicable transaction document when negotiating and drafting the terms of an engagement letter. The terms of the engagement letter must be carefully worded and read in concert with the terms and limitations set forth in each of the applicable transaction documents to ensure consistency and to achieve the parties’ desired outcome.

If you would like further information about this or any other matter, please contact any member of the Global Bank and Institutional Finance & Restructuring Group.