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The baseball team, as anticipated, filed its Chapter 11 papers Monday, as part of Tribune Co.'s plan to transfer control of the team to the Ricketts family. The team's stay in bankruptcy may last only a day; a hearing is scheduled for Tuesday afternoon in a Delaware bankruptcy court.
The swift action is a novel use of the bankruptcy code, according to legal experts.
"The parties who structured the sale of the Cubs and obtained the court's approval of the sale process showed a great deal of imagination and creativity in the proposal they presented to the court," John Schanne and David Stratton, bankruptcy lawyers at Pepper Hamilton, wrote in a recent client memo.
The Cubs transaction is being handled under Section 363 of the federal bankruptcy code, a tactic once used to shed failing plants or unused equipment. Today, Section 363 can apply to companies of any size, lawyers say. Just look at the recent restructurings of automakers General Motors and Chrysler.
A Section 363 sale usually takes 30 to 45 days to receive court approval. Tribune Co., however, faced strict deadlines to close the deal with the Ricketts family or risk paying break-up fees.
The Cubs' expedited process was set in motion long before the team filed for bankruptcy.
Tribune Co., parent of the Chicago Tribune, filed for bankruptcy in December but left the baseball franchise and related assets out of the case so it could continues the sales process. After months of negotiations, the company struck a deal on Aug. 21 with the Ricketts family in a transaction valued at $845 million that includes Wrigley Field and Tribune Co's 25 percent stake in Comcast SportsNet Chicago, a regional cable network that broadcasts Cubs games.
On Aug. 24, Tribune Co. asked U.S. Bankruptcy Judge Kevin Carey to fast-track the 363 sale in a two-step process, even though the Cubs had yet to commence its own bankruptcy proceedings.
Tribune Co. lawyers argued that parties interested in buying the team have had enough time to consider a possible deal. The company put the team on the market in April 2007, as part of a going-private transaction engineered by Chicago real estate maverick Sam Zell.
A methodical auction process over 21 months narrowed the field of bidders from 10 to five to three to one. The long pre-bankruptcy sales process combined with Tribune Co.'s bankruptcy case merited quick relief, according to Tribune Co.
Crane Kenney, Cubs chairman, also said in court papers that a long stay for the team in bankruptcy court would be detrimental to team operations. The Cubs have to make decisions on player contracts soon after the World Series ends in the first week of November.
Carey approved Tribune's request on Aug. 31. Objections to the sale were due on Sept. 17. The judge approved the terms of the deal with the Ricketts family on Sept. 24, at which time he set the date for Tuesday's hearing.
One of the main purposes of the Cubs' trip through court is to protect the Ricketts family from creditor claims against Tribune Co., said Douglas Baird, a professor at the University of Chicago Law School.
"One day is very quick, but this process has been vetted for a long time," Baird said. "You wouldn't plan to have a one-day sale unless you have lined up your ducks."
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