Replies to post #6738 on Visteon Corporation (VC)

[1jk1]

Peg Brickley Article - VERY Interesting (Part 1) 13-Jul-10 11:45 pm By Peg Brickley
Bondholders angling to take over Visteon Corp. are worried
that a brewing confirmation battle will expose what they
actually invested to gain a foothold in the auto-parts maker’s
bankruptcy case.
The bonds are now selling above par, a sign that the prospect
of a bondholder takeover of the revived Visteon is considered
a good investment. Last year, when Visteon plunged into
Chapter 11 protection in the wake of a collapsing automotive
industry, investors were unloading the same bonds for two
cents to five cents on the dollar.
Who stands to make a killing if the bankisruptcy takeover
succeeds, has become a jealously guarded secret in Visteon’s
bankruptcy case, one that the hedge funds seem determined
to keep.
Fear that the information would leak out had lawyers for
bondholders and lawyers for banks before a judge Monday.
They had reached an impasse on rules for the exchange of
information in advance of a confirmation battle scheduled to
start Sept. 28.
“Keep it away from the experts,” bondholder attorney
Christopher Shore said at a hearing in the U.S. Bankruptcy
Court in Wilmington, Del. The lawyer, who is with White &
Case, was arguing for severe restrictions on information being
traded ahead of a Chapter 11 contest.
With banks owed $1.6 billion, shareholders and trade
creditors are preparing to battle Visteon over its bondholderbacked
plan in the fall in a contest that is expected to feature
debates over how much Visteon is really worth and who is
really backing the company.
According to the banks, Visteon’s plan is legally flawed, illadvised
and unfair. They wanted their experts to see everything
that turns up in the discovery going on ahead of the
Chapter 11 plan contest.
Judge Christopher Sontchi backed Visteon’s bondholders,
ordering that sensitive information be shared only among
attorneys. He instructed the bondholders, however, to provide
a log of the types of information that would be provided
under strict confidentiality. That way, if bank experts really
need the data on bondholder investments, the lenders can
return to court and make a case for access, he said.
“Experts sort of need to know not only what they have, but
what they don’t have,” Sontchi commented.
Monday’s debate over shielding information about who is in
line for big profits if Visteon’s plan is confirmed highlights the
touchiness of the issue in the distressed-debt industry.
Unlike major institutional shareholders of public companies
who must heed securities rules about disclosure, dealers in
distressed debt say they’re entitled to keep their holdings to
themselves. It is a point that has split the judges of the
Delaware bankruptcy court, with Sontchi allowing bondholders
to keep their secrets and Judge Mary Walrath ruling the
opposite, requiring disclosure if bondholders band together in
groups.
glta

[1jk1]

Peg Brickley Article - VERY Interesting (Part 2) 13-Jul-10 11:46 pm Legally, $1 million worth of Visteon bonds is counted as $1
million worth of Visteon bonds in bankruptcy court, even if
the investor paid only $20,000 for it in the distressed-debt
market. In an open court fight against public-company shareholders,
however, the Visteon bondholders could run up
against arguments that they have less at risk than many others
who backed the parts maker.
Bondholders are owed $870 million and have agreed to put
up an additional $1.25 billion to finance the Chapter 11
takeover. The money will be used to pay down some of
Visteon’s bank debt, while the company refinances the rest.
Visteon’s banks are operating under the threat that if they vote
“no” on the bondholder plan, they can be forced to leave
some of their existing loans in place. That means a favorable
interest rate for Visteon, and suppressed profits for lenders
who had expected for months to be able to take over most of
the company.
Visteon’s existing Chapter 11 plan replaces one that would
have give the banks ownership of 85% of a reorganized parts
maker, and bondholders the remainder.
Once bondholders committed to provide cash to pay off part
of the bank debt, however, the company rewrote its Chapter
11 plan.
Shareholders were left with nothing under both versions of
Visteon’s Chapter 11 plan until recently. The latest version
offers them a 2% share of the bondholder-backed investment
opportunity.
Lawyers for shareholders say Visteon’s bondholders are
getting an unfair bargain, and some of them have asked for
court permission to put up a plan of their own for the
company.
Visteon also faces trouble with trade creditors, who say they’re
being cheated out of the right to invest in a reorganized
company, which has seen its business prospects rise with the
return to normal conditions in the auto industry.
Even though their debt ranks alongside the bonds in the bankruptcy
payment scheme, they are getting cash in partial
payment, instead of a share in the company, say trade
creditors Fulcrum Credit Partners LLC, Hain Capital Group
and Liquidity Solutions Inc.
The official committee of unsecured creditors has accused
trade creditors of conducting a “malicious solicitation
campaign,” by contending it has the voting power to keep
Visteon’s plan from winning court approval. Votes are due in
by July 30, and unsecured creditors are calling for a probe of
the trade creditors, in order to make sure the balloting is not
tainted by “highly suspect” information.
glta