Judge in Visteon bankruptcy asked to approve agreements underlying proposed reorganization

Judge weighs Visteon bankruptcy deal

WILMINGTON, Del. — Shareholders and secured lenders continued to try to poke holes in Visteon Corp.’s proposed reorganization plan Monday as the company asked a Delaware bankruptcy judge to approve agreements with unsecured bondholders seeking to take control of the auto parts supplier.

Judge Christopher Sontchi heard testimony from Visteon’s chief financial officer and investment adviser but postponed final arguments from attorneys until Tuesday afternoon.

Visteon, based in Van Buren Township, Mich., is seeking approval of a plan support agreement and equity commitment agreement with senior noteholders, and the authority to pay tens of millions of dollars in fees associated with those agreements.

But shareholders and secured lenders remain critical of Visteon’s proposal, noting that the company could have to cough up more than $100 million in fees under its proposed $1.25 billion financing arrangement with the bondholders. They also point out that the bondholders would not be subject to any financial penalties if they don’t come up with their promised financing, but nevertheless would seek a $43.7 million breakup fee from Visteon if it pursues an alternative plan.

The term lenders and shareholders have offered to provide financing for Visteon’s reorganization without charging the fees being demanded by the bondholders and others, including $62.5 million that would be paid to Visteon’s financial adviser, Rothschild.

“We’ll do all they want without fees,” said Martin Bienenstock, an attorney for the shareholders. “Frankly judge, we think that’s a show stopper.”

But Ira Wolfson, a managing director for Rothschild, testified that the fees being challenged by the lenders and shareholders are comparable to those in other bankruptcies.

Visteon Chief Financial Officer William Quigley testified that the proposed fee-free financing offered by the term lenders and shareholders does not have the support of unsecured creditors and likely would lead to litigation.

“The bondholders have indicated that they will not support that plan,” said Quigley, who drew a quick retort from Bienenstock.

“Explain how you’re fulfilling the fiduciary duty to the estate by turning that down because the bondholders don’t like it,” Bienenstock asked Quigley, who described the fees Visteon would pay as the cost of moving the case forward and emerging from bankruptcy as quickly as possible.

Visteon, a top auto parts supplier to and former subsidiary of Ford Motor Co., filed for bankruptcy protection in May 2009 after automakers cut production and revenues plunged during the recession.

Under Visteon’s proposed reorganization plan, unsecured bondholders 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 term lenders, who hold $1.6 billion in debt.

If the bondholders are not successful in raising 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 bondholders.

In an attempt to placate shareholders, Visteon submitted a fourth version of its reorganization plan just hours before Monday’s hearing. The new plan offers shareholders about 2 percent of the equity in the reorganized company if they support Visteon’s proposal.