Judge delays hearing in Visteon bankruptcy after 2 groups say they have better plan

Visteon reorganization plan challenged

WILMINGTON, Del. — A Delaware bankruptcy judge on Monday delayed arguments on whether to approve documents underlying auto parts supplier Visteon’s proposed reorganization plan after two creditor groups said they have a better idea.

Judge Christopher Sontchi continued Monday’s hearing until June 14 after attorneys for secured term lenders and shareholders said they can match the provisions of Visteon’s preferred reorganization plan without costing the bankruptcy estate the tens of millions of dollars in fees and expenses associated with it.

Sontchi postponed the hearing after attorneys for Visteon and its creditors committee failed to adequately explain why he should hurry the case along.

“Why today? Why not three, four weeks from now and allow the negotiations to continue to percolate?” the judge asked Visteon attorney Marc Kieselstein.

Kieselstein noted that the term lenders and shareholders do not have a formal agreement on their plan, and that they continue to disagree with each other on important issues in the case, including how to value Visteon. He argued that the hearing should proceed, and that Visteon could reserve its rights to consider alternative plan suggestions later if need be.

“There are increasing stresses on our business,” Kieselstein added, noting that Nissan and Ford Motor Co. both have expressed concerns about the pace of Visteon’s Chapter 11 case.

Kieselstein said Visteon, based in Van Buren Township, Mich., has had to put some business opportunities on hold because of the bankruptcy, and that it is concerned about “gathering storm clouds” in Europe, from which the company derives much of its profit.

But Martin Bienenstock, an attorney representing an ad hoc group of shareholders, suggested that Visteon has deliberately tried to downplay its value and improved financial picture. He noted that rival auto parts supplier Johnson Controls Inc. announced last week that it had offered $1.25 billion for Visteon’s automotive interiors and electronics business, having been rebuffed when it approached Visteon in January.

Attorneys for the term lenders and shareholders warned Sontchi that if he signed off Monday on motions submitted by Visteon for court approval, more than $20 million in unnecessary transaction expenses and commitment fees related to its proposed reorganization plan would be subject to immediate payment.

Bienenstock also told the judge that provisions in the Visteon plan agreements would obligate the company to pay a breakup fee of more than $43 million and additional fees of $16 million if it considered an alternative plan.

“You would lock in humongous expenses, you would preclude people from negotiating, and a clearly superior plan could be lost,” said Bienenstock, whose clients stand to be wiped out under Visteon’s plan unless enough money is freed up to trickle down to them.

Visteon has proposed giving a 95 percent stake in the company to senior noteholders if they can raise $1.25 billion to pay off the secured term lenders, with other bondholders sharing the remaining 5 percent. If the senior noteholders can’t raise the money, Visteon would “toggle” to an earlier plan giving the secured lenders 85 percent ownership of the reorganized company, with the rest going to noteholders.

In their proposal, the term lenders have offered to convert $300 million in debt to common shares in a reorganized Visteon, and to backstop a $950 million common share offering to bondholders without charging some $87 million in fees called for in Visteon’s plan. The shareholders, meanwhile, have said they will buy $175 million in the new company’s stock at a 5 percent premium and will backstop the purchase of another $210 million in common equity by other shareholders. The shareholder cash would reduce or eliminate the need for Visteon to leverage $400 million in exit financing and save it up to $40 million annually in interest expense, they said.

“One would think we would have applause, but I haven’t heard that,” said Bienenstock, adding that Visteon had sent “a laundry list of obstacles” in response to the proposal.

In postponing Monday’s hearing, Sontchi noted that Visteon’s board had not been given the opportunity to consider the proposal from the term lenders and shareholders.

“I think it would be appropriate for them to do that,” the judge said. “If there are continuing negotiations over something that may be a material improvement, they need an opportunity to review that and figure out how to proceed.”