EXIDE BANKRUPTCY UPDATE – Exide bondholders contend Chapter 11 reorganization plan unfair and unworkable
Exide Bondholders Contend Ch. 11 Plan Unfair, Unworkable
Law360, Wilmington (December 18, 2014, 8:16 PM ET) — Two senior bondholders of Exide Technologies Inc. took issue with the battery maker’s disclosure statement Thursday, saying it supports an unconfirmable Chapter 11 plan that improperly favors certain creditors.
The proposed plan runs afoul of the Bankruptcy Code by offering eligible noteholders “extremely valuable recoveries” that are not available to retail noteholders, according to an objection filed by Smith and Nelson in Delaware bankruptcy court.
“This lack of equal treatment violates Section 1123(a)(4) and renders the plan unconfirmable,” the objection said.
Proposed Nov. 17, Exide’s plan would trim about $600 million from its roughly $1.4 billion in current liabilities, which include $675 million in outstanding principal on the senior secured notes and more than $546 million owed under a debtor-in-possession financing package, according to the disclosure statement.
Eligible senior noteholders — defined as accredited investors or qualified institutional buyers — would receive 15 percent of the reorganized company’s equity under the plan and the chance to participate in a $175 million rights offering for new second-lien convertible notes, as well as the option to purchase a portion of the $346.8 million in DIP term loan claims, according to court documents.
That treatment is not available to retail noteholders, whose alternative recovery is left unspecified by both the plan and disclosure statement, Smith and Nelson contend.
Retail investors are believed to own between 10 percent and 20 percent of all senior notes, according to the objection, and “are entitled to know the precise amount of cash which the debtor proposes to pay them.”
Exide’s plan also violates the absolute priority rule because, among other things, it offers retail noteholders less par value plus interest but promises recoveries to junior classes, the objection said.
Meanwhile, the disclosure statement lacks key information required by creditors, including valuation and liquidation analyses and details on Exide’s current sale efforts, according to the objection.
A hearing on the disclosure statement is slated for Jan. 12 before U.S. Bankruptcy Judge Kevin J. Carey.
Exide, one of the largest producers of lead batteries for the industrial and transportation markets, sought court protection for its U.S. operations back in June 2013 and floated a Chapter 11 plan last month.
Backed by a plan support agreement reached with the majority of senior noteholders, Exide’s plan also envisions $175 million in new investments, according to court documents.
“The plan provides for an equitable distribution of recoveries to the debtor’s creditors, preserves the value of the debtor’s business as a going concern and preserves the jobs of employees,” Exide said in the disclosure statement.
The Georgia-based company will continue to market itself — a condition included in the Nov. 4 PSA — and will proceed with a sale if it provides a better return for stakeholders, according to the disclosure statement.
Unsecured creditors are free to propose a competing Chapter 11 plan, the result of an October decision by Judge Carey that made termination of Exide’s exclusivity period a condition for approving the company’s DIP extension.
Smith and Nelson are represented by Marc J. Phillips of Manion Gaynor & Manning LLP and L. Matt Wilson of The Wilson Law Firm PC.
Exide is represented by Anthony W. Clark, Kristhy M. Peguero, Kenneth S. Ziman, J. Eric Ivester and James J. Mazza Jr. of Skadden Arps Slate Meagher & Flom LLP.
The case is In re: Exide Technologies, case number 1:13-bk-11482, in the U.S. Bankruptcy Court for the District of Delaware.
–Additional reporting by Matt Chiappardi and Andrew Scurria. Editing by Chris Yates.