A group of hedge fund managers is playing hardball with Visteon, the auto parts company that is trying to emerge from bankruptcy.
For the second time this month, the investors — New York City-based Davidson Kempner Partners, New York City-based Brigade Capital Management, and Greenwich, Connecticut-based Plainfield Asset Management — fired off a letter to the one-time Ford Motor unit challenging its latest reorganization plan.
The hedge funds, who call themselves the Ad Hoc Committee of equity holders and jointly filed their holdings and wishes with the SEC, say they represent a group that controls 7.87 percent of Visteon’s common stock.
They are apparently taking a pretty big gamble. They are well aware it is rare for equity holders to get anything in a bankruptcy reorg. However, the trio, which bought their shares between Feb. 26 and March 19, insist there is plenty of value left for them after the secured holders get their share.
Visteon, a former division of Ford Motor, had filed for bankruptcy in May 2009. Its amended plan of reorganization, filed March 15, would retain the company’s U.S. defined benefit pension plans and provide recoveries to unsecured creditors, including bondholders and trade creditors. “The amended plan has the express and unanimous support of the ad hoc committee of term loan holders, as well as the support of other significant term lenders with aggregate holdings of approximately 74 percent of the term lenders’ secured claim,” the company stated.
It stressed, however, the amended plan does not provide for any recovery to holders of Visteon’s equity securities.
In its most recent letter sent March 25th to Visteon’s board of Directors, the hedge fund investors assert the new reorganization plan “completely ignores the true value” of the company and “wrongfully extinguishes shareholders.”
The hedge fund managers stress that Delaware corporate law requires a shareholder vote to sell substantially all Visteon’s assets, yet the company is, in effect, accomplishing the same effect without a shareholder vote.
“As with the initial Chapter 11 plan proposed by the company, the recent Plan is based on an unrealistically low valuation of the company and its assets and a suboptimal capital structure, which together provide an indefensible windfall to the Company’s secured lenders at the expense of the Company’s other creditors and shareholder,” the letter goes on to say. “The Ad Hoc Equity Committee’s analysis shows the Company is worth significantly more than the Plan and Disclosure Statement would lead the Court, creditors, and equityholders to believe.”
The letter asserts that the company’s top line projections are unreasonably low. It adds projections do not reflect the operational improvements the company has achieved. It also claims the company’s valuation of its equity in its non-consolidated joint ventures is far below their fair market value. It also insists the company way undervalues its 70 percent in Halla Climate Control Corp.
The upshot: The investors claim that using a reasonable valuation of both the company’s non-consolidated joint ventures and Visteon’s core business together with its cash and the public market value of Halla would result in a total valuation well in excess of the $3.1 billion of total claims against the company, “leaving significant value for shareholders.”
Davidson Kempner, which managed about $11 billion at year-end, paid between $0.26 and $0.77 per share for its stake. Brigade, which managed about $4 billion, paid between $0.51 and $91.
Plainfield paid $0.14 and $0.77 for its position. The stock was last trading at $0.59 a pop. According to a recent report in Fortune magazine, most of Plainfield’s $3.3 billion in assets under management are gated and are invested in liquidating vehicles. Only $500 million in assets is left and not subject to the gate, according to The New York Post.
Stay tuned. This battle is far from over.
