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Visteon Reorganization Plan Faces Opposition

Recently, in Delaware, bankruptcy judge, Christopher Sontchi postponed arguments on whether to approve Visteon’s, an auto parts supplier based in Michigan, suggested reorganization plan; due, in large part, to two creditor groups who announced they had “a better plan.” Visteon has had to deny business opportunities because of their bankruptcy.

Attorneys for both secured term lenders and shareholders, said they will be able to match Visteon’s provisions of their preferred reorganization plan, without costing the bankrupt estate tens of millions of dollars in fees and various expenses. As well, the hearing was postponed by the judge once Visteon’s lawyers and creditors committee were unable to justify the need to rush the case.
Judge Sontchi asked Visteon attorney, Marc Kieselstein, “Why today? Why not three, four weeks from now and allow the negotiations to continue to percolate?” Kieselstein argued the hearing should proceed while Visteon reserve its rights to weigh in alternative plans, if need be. According to the attorney, term lenders and shareholders alike, continue to disagree on important issues such as how to value Visteon itself.

Additionally, both Nissan and Ford Motor Co. have expressed mounting concerns over the pace of Visteon’s Chapter 11 case. Meanwhile, Martin Bienenstock, an attorney for an ad hoc group of shareholders, claims Visteon has intentionally downplayed its value, noting Visteon’s competitor, Johnson Controls Inc., announced recently an offer of $1.25 billion for Visteon’s automotive interiors and electronics businesses.

Bienenstock told Judge Sontchi provisions in Visteon’s plan agreements would in turn force the company to pay a hefty $43 million breakup fee, in addition to another $16 million in extra fees, just to consider an alternative plan.

The term lenders, in their proposal, will convert $300 million in debt, to common shares within a newly reorganized Visteon. This is in addition to backstopping a $950 million common share offering to bondholders—without ever charging nearly $87 million in fees, originally called for in the Visteon plan.

Visteon has offered to give a 95% stake in the company to senior noteholders, provided they generate $1.25 billion to pay off secured term lenders; with other bondholders to share the remaining 5%. Should noteholders fail to raise the money, Visteon would then rearrange an earlier plan, to give secured lenders 85% ownership of the newly reorganized company—the rest would go to the noteholders.
Shareholders have offered to buy $175 million in the new company’s stock at a 5% premium and to backstop the purchase of another $210 million in common equity, by other shareholders. Shareholder cash would greatly lower the necessity for Visteon to leverage $400 million in exit financing; and save it up to $40 million annually, in interest expenses.