Bankruptcy judge approves Visteon arrangements with bond holders, schedules disclosure hearing

Judge OK’s Visteon arrangements with bond holders

WILMINGTON, Del. — A Delaware bankruptcy judge on Thursday approved key financial arrangements between auto parts supplier Visteon Corp. and bond holders who are fighting secured lenders for control of the company.

Overruling objections from the lenders and a group of Visteon shareholders, Judge Christopher Sontchi approved Visteon’s plan support agreement and equity commitment agreement with senior bond holders, who have offered to arrange $1.25 billion in financing for Visteon to emerge from bankruptcy.

The shareholders and secured lenders argued against the agreements, saying they would cost Visteon more than $100 million in unnecessary fees. Competing with the bond holders for majority stock ownership in the reorganized company, they offered to provide similar financing without charging any fees and accused Visteon of using the fees to buy the support of bond holders for its reorganization plan.

But the judge agreed with Visteon that its arrangement with the bond holders was a proper exercise of the company’s business judgment as it seeks to emerge from bankruptcy as quickly as possible.

“I don’t believe or find that there’s anything untoward going on here,” Sontchi said, noting that critics of the reorganization plan will still have the opportunity to argue against it.

“This isn’t a confirmation hearing, … and I don’t believe that by approving these motions I’m somehow putting this case on an inexorable path to confirmation of the debtor’s reorganization plan,” the judge said.

Sontchi rejected the notion that the plan agreements amounted to an option that the bond holders could walk away from with virtually no financial penalty.

“The bond holders have well-defined obligations under the agreements and they have serious consequences that would adhere to them if they fail to fulfill those obligations,” he said.

Among those consequences, the judge noted, would be the obligation to support Visteon’s backup reorganization plan, which would give control to the secured lenders and leave the bond holders with far less than what they would get under the company’s preferred plan.

Attorneys for the lenders and shareholders indicated that they will appeal Sontchi’s decision and would seek his permission to file their challenge directly to a federal appeals court, bypassing a federal district court in Delaware.

“This could have a very serious impact on these cases,” said Timothy Karcher, an attorney for the shareholders.

Meanwhile, Sontchi scheduled a hearing on the disclosure statement describing Visteon’s reorganization plan, which he must approve before the plan can be sent to creditors for voting, for Monday.

Visteon, a top supplier to and former subsidiary of Ford Motor Co. based in Van Buren Township, Mich., filed for bankruptcy protection in May 2009 after automakers cut production as revenue plunged during the recession.

Under Visteon’s proposed reorganization plan, the unsecured bond holders would take a 95 percent stake in the reorganized company by buying $300 million worth of equity and raising another $950 million in a stock rights offering that would be used to help pay off the secured lenders, who hold $1.6 billion in debt.

If the bond holders fail to raise the money, Visteon would revert to a previous plan under which the secured lenders’ debt would be converted to an 85 percent equity stake in the new company, with the rest going to the bond holders.

In return for arranging and leading the stock purchase plan, the bond holders would be entitled to more than $60 million in fees. Visteon’s financial adviser, Rothschild, would receive $62.5 million.

Sontchi’s ruling Thursday means the bond holders can immediately be paid fees and expenses of more than $20 million. He noted that the initial fee payment may have to be returned if the deal falls apart, and that the rest of the fees, which he said seemed “a little high,” depend on confirmation of Visteon’s reorganization plan.

“All that money doesn’t go out the door unless and until we get over the hurdle, which is confirmation,” the judge said.