JPMorgan (NYSE:JPM), Citicorp (NYSE:C), Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) Sued by Tribune Bondholders

Bondholders of Tribune, in connection to the Chapter 11 bankruptcy case, have sued JPMorgan (NYSE:JPM), Merrill Lynch Capital Corp.,Citicorp (NYSE:C), Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) over the financing of the buyout of the company in 2007.

The financing of Tribune by the financial institutions led to the leveraged buyout of Tribune in 2007, which the bondholders claimed the banks knew would result in Tribune ending up being insolvent.

The bonds in question are valued at $1.2 billion, which were acquired before Sam Zell bought out the giant media company for $8.2 billion.

According to the lawsuit filed late on Thursday, the deal for Tribune was a fraud because the debt issued by the banks and financial institutions was primarily used to buy out stockholders in the company.

And getting down to the crux of the matter, the bondholders want the secured claims of the banks to be laid aside until the unsecured claims of the bondholders are taken care of.

In other words, they want their position to be put before the many banks involved, and once they are paid, then the banks will get what is left over.

Wilmington Trust Co. filed the lawsuit, which was the agent for those holding the bonds.