Wednesday, April 01, 2009 7:28:58 PM
By Patrick Fitzgerald
Of DOW JONES NEWSWIRES
Goldman Sachs Group Inc. (GS) says Spectrum Brands Inc.'s (SPCB) plan to exit bankruptcy under its bondholders' control represents a "naked flawed endeavor by three hedge funds" to take over the company that owns Rayovac batteries and Remington shavers.
Goldman Sachs, the lead lender on a $1.4 billion loan to Spectrum, is objecting to an outline of Spectrum's bankruptcy-exit plan, which is backed by hedge funds who own more than two-thirds of the company's approximately $1 billion in bond debt.
"The proposed plan described in the disclosure statement represents nothing more than a naked, flawed endeavor by three hedge funds, acting in concert, to leverage their subordinated, unsecured claim positions into a bankruptcy takeover of (Spectrum)," lawyers for Goldman said in court papers filed Tuesday.
(This article also appears in Daily Bankruptcy Review, a publication from Dow Jones & Co.)
Spectrum filed for bankruptcy in February with a plan backed by hedge funds D.E. Shaw & Co., Avenue Capital Management and Harbinger Management that swaps some of the company's bond debt for a controlling stake in the company.
The plan would give bondholders, owed about $1 billion, new stock in the reorganized company and new notes. Lenders led by Goldman Sachs would see their debt reinstated, and shareholders would be wiped out.
A bankruptcy judge must sign off on the disclosure statement, which describes the reorganization plan, before creditors can vote on it.
Spokespeople for Spectrum and Avenue Capital declined to comment. Spokespeople for Harbinger and D.E. Shaw said they couldn't immediately comment.
Separately, the committee representing Spectrum's shareholders is also protesting Spectrum's bankruptcy deal, saying the plan "substantially undervalues" the company by pegging its reorganization value at $2.3 billion. Some shareholders are also raising questions about Harbinger's role in the bankruptcy.
Last year, Spectrum agreed to sell its pet supplies business, which accounts for about 33% of Spectrum's pretax earnings, for some $915 million to Salton Inc., a company controlled by Harbinger.
The sale, which represented a multiple of about 10 times the unit's pretax earnings, was scuttled when Spectrum couldn't get approval from its senior lenders.
Harbinger also once owned a 9.45% stake in Spectrum Brands. The hedge fund sold about 92% of its shares in Spectrum in November of last year, several months after the pet business sale was abandoned.
Now, the shareholders say, Spectrum is proposing to sell its entire business at a multiple of 6.6 times pretax earnings. The shareholders say there's been no deterioration in Spectrum's business since the sale was scrapped. They point to statements made last month by Spectrum's chief executive that the company's financial results are "ahead of our internal plan."
But the lower valuation allows the bondholders, including Harbinger, to gain control of Spectrum without providing a recovery to shareholders.
"The only thing that's changed is that Harbinger has appeared to change sides from equity to debt," said Phil Mittleman, a managing partner at Mittleman Brothers, LLC, a New York investment firm that is a member of the shareholder committee.
Judge Ronald King of the U.S. Bankruptcy Court in San Antonio, Texas, has scheduled a hearing on Spectrum's disclosure statement. If it passes muster with the court, Spectrum can send the plan to its creditors for a vote.
Spectrum, which is based in Atlanta, has annual sales of around $2.7 billion. The company filed for bankruptcy after years of acquisitions, which loaded the company up with debt it said it couldn't repay as the economy went into a tailspin.
The company's roots go back to the Rayovac battery company, which was previously controlled by Boston private-equity fund Thomas H. Lee Partners in the 1990s. In 1997, Rayovac sold shares to the public.
In addition to its batteries, pet supplies and electric-shaver businesses, Spectrum also makes everything from bug sprays to hearing aids.
-By Patrick Fitzgerald, Dow Jones Newswires; 202-862-3544; patrick.fitzgerald@dowjones.com
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(END) Dow Jones Newswires
04-01-09 1500ET
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