Facts

Currently headquartered in New York, Young Broadcasting and its affiliates (collectively "the Debtors") own and operate 10 television stations including KRON in San Francisco and previously KCAL in Los Angeles. The company was founded in 1986 by Vincent Young and his father, Adam Young.

During the years leading up to the Chapter 11 filing, Young Broadcasting suffered a substantial decline in revenue and encountered increased competition from other television stations as well as alternate advertising vehicles such as newspapers, radio stations, magazines, cable networks, and internet portals. Its largest station, KRON-TV, suffered severe cash flow losses. Young explored various options prior to filing Chapter 11, including cost savings initiatives, attempts to sell KRON, and discussions of out-of-court restructuring.

Young Broadcasting appointed a chief restructuring officer to effect a recapitalization and deleveraging through a Chapter 11 plan or a section 363 sale. When the cases were first filed, the Debtors pursued a dual track process, exploring a sale of substantially all of their assets while attempting to reach a consensual "stand alone" plan with their major constituents. The Debtors ultimately proposed a plan resulting in a sale of substantial portion of their assets to the senior lenders. The unsecured creditors later proposed a competing plan that called for the reinstatement of the senior lenders' credit agreement with the equity of the new company going to the unsecured creditors and the Chairman of Young Broadcasting, Vincent Young. After the unsecured creditors proposed their plan, the Debtors indicated a "preference" for the unsecured creditors' plan in the event that the Court found that plan feasible under applicable bankruptcy law.

Result

The Court found in favor of the senior secured lenders. The ruling denies a "reinstatement plan" proposed by the unsecured creditors in the bankruptcy and confirms the plan of reorganization supported by Wachovia Bank, N.A., acting as the agent for the senior secured lenders. The Court refused to accept the unsecured creditors' plan, signaling that reinstatement strategies in bankruptcy cases will face substantial judicial scrutiny where the plan proponents cannot demonstrate that their plan is the most feasible and responsible course for the debtor.