10000003629

Hearing Date: September 1, 2010, at 8:30 a.m. Eastern time Objection Deadline: August 23, 2010, at 4:00 p.m.
Eastern time
DECHERT LLP 1095 Avenue of the Americas New York, New York 10036-6797 Telephone: (212) 698-3500 Facsimile: (212) 698-3599 Michael J. Sage Brian E. Greer Andrew L. Buck Attorneys for Lehman ALI Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------ X : In re: : Chapter 11 : 1 INNKEEPERS USA TRUST, et al. : Case No.: 10-13800 : Debtors. : Jointly Administered : ------------------------------------------------------------ X LEHMAN ALI INC.S OBJECTION TO MOTION OF AD HOC COMMITTEE OF PREFERRED SHAREHOLDERS FOR ORDER DIRECTING APPOINTMENT OF EXAMINER PURSUANT TO SECTION 1104(c)(1)-(2) OF THE BANKRUPTCY CODE AND JOINDER IN DEBTORS OBJECTION TO MOTION Lehman ALI Inc. (Lehman), submits this objection (the Objection) to the motion of ad hoc committee of preferred shareholders (the Ad Hoc Committee) for an order directing the appointment of an examiner pursuant to section 1104(c)(1)-(2) of the Bankruptcy Code [Dkt. No. 179] (the Examiner Motion) and joins in the objection of the Debtors to the Examiner Motion, and respectfully states as follows:
The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtors federal tax identification number, are: GP AC Sublessee LLC (5992); Grand Prix Addison (RI) LLC (3740); Grand Prix Addison (SS) LLC (3656); Grand Prix Albany LLC (3654); Grand Prix Altamonte LLC (3653); Grand Prix Anaheim Orange Lessee LLC (5925); Grand Prix Arlington LLC (3651); Grand Prix Atlanta (Peachtree Corners) LLC (3650); Grand Prix Atlanta LLC (3649); Grand Prix Atlantic City LLC (3648); Grand Prix Bellevue LLC (3645); Grand Prix Belmont LLC (3643); Grand Prix Binghamton LLC (3642); Grand Prix Bothell LLC (3641); Grand Prix Bulfinch LLC (3639); Grand Prix Campbell / San Jose LLC
15890634.2
Preliminary Statement 1. Despite the litany of alleged wrongdoings cited in the Examiner Motion, at the
core of the request by the Ad Hoc Committee which represents an out-of-the-money constituency for the appointment of an examiner is a dispute over valuation and the Debtors proposed path toward exit from bankruptcy. Those disputes, far from forming the basis for investigation by a third-party examiner, are commonplace issues properly raised by parties in interest in connection with plan confirmation. 2. Indeed, virtually all of the issues identified by the Ad Hoc Committee in the
Motion have already been raised by parties objecting to the Debtors proposed assumption of
(3638); Grand Prix Cherry Hill LLC (3634); Grand Prix Chicago LLC (3633); Grand Prix Columbia LLC (3631); Grand Prix Denver LLC (3630); Grand Prix East Lansing LLC (3741); Grand Prix El Segundo LLC (3707); Grand Prix Englewood / Denver South LLC (3701); Grand Prix Fixed Lessee LLC (9979); Grand Prix Floating Lessee LLC (4290); Grand Prix Fremont LLC (3703); Grand Prix Ft. Lauderdale LLC (3705); Grand Prix Ft. Wayne LLC (3704); Grand Prix Gaithersburg LLC (3709); Grand Prix General Lessee LLC (9182); Grand Prix Germantown LLC (3711); Grand Prix Grand Rapids LLC (3713); Grand Prix Harrisburg LLC (3716); Grand Prix Holdings LLC (9317); Grand Prix Horsham LLC (3728); Grand Prix IHM, Inc. (7254); Grand Prix Indianapolis LLC (3719); Grand Prix Islandia LLC (3720); Grand Prix Las Colinas LLC (3722); Grand Prix Lexington LLC (3725); Grand Prix Livonia LLC (3730); Grand Prix Lombard LLC (3696); Grand Prix Louisville (RI) LLC (3700); Grand Prix Lynnwood LLC (3702); Grand Prix Mezz Borrower Floating 2, LLC (9972); Grand Prix Mezz Borrower Fixed, LLC (0252); Grand Prix Mezz Borrower Floating, LLC (5924); Grand Prix Mezz Borrower Term LLC (4285); Grand Prix Montvale LLC (3706); Grand Prix Morristown LLC (3738); Grand Prix Mountain View LLC (3737); Grand Prix Mt. Laurel LLC (3735); Grand Prix Naples LLC (3734); Grand Prix Ontario Lessee LLC (9976); Grand Prix Ontario LLC (3733); Grand Prix Portland LLC (3732); Grand Prix Richmond (Northwest) LLC (3731); Grand Prix Richmond LLC (3729); Grand Prix RIGG Lessee LLC (4960); Grand Prix RIMV Lessee LLC (4287); Grand Prix Rockville LLC (2496); Grand Prix Saddle River LLC (3726); Grand Prix San Jose LLC (3724); Grand Prix San Mateo LLC (3723); Grand Prix Schaumburg LLC (3721); Grand Prix Shelton LLC (3718); Grand Prix Sili I LLC (3714); Grand Prix Sili II LLC (3712); Grand Prix Term Lessee LLC (9180); Grand Prix Troy (Central) LLC (9061); Grand Prix Troy (SE) LLC (9062); Grand Prix Tukwila LLC (9063); Grand Prix West Palm Beach LLC (9065); Grand Prix Westchester LLC (3694); Grand Prix Willow Grove LLC (3697); Grand Prix Windsor LLC (3698); Grand Prix Woburn LLC (3699); Innkeepers Financial Corporation (0715); Innkeepers Financing Partnership II LP (9546); Innkeepers Morristown LLC (7834); Innkeepers RI Altamonte LP (3243); Innkeepers RI General LP (3244); Innkeepers RI Northwest LP (7740); Innkeepers Schaumburg LP (9822); Innkeepers Summerfield Gen. II LP (5954); Innkeepers Summerfield Gen. LP (3856); Innkeepers Westchester LP (9618); Innkeepers USA Limited Partnership (3956); Innkeepers USA Trust (3554); KPA Ft. Walton, LLC (4502); KPA HI Ontario LLC (6939); KPA HS Anaheim, LLC (0302); KPA Leaseco II, Inc. (6868); KPA Leaseco Holding Inc. (2887); KPA Leaseco, Inc. (7426); KPA RIGG, LLC (6706); KPA RIMV, LLC (6804); KPA San Antonio, LLC (1251); KPA Tysons Corner RI, LLC (1327); KPA Washington DC, LLC (1164); KPA/GP Ft. Walton LLC (3743); KPA/GP Louisville (HI) LLC (3744); KPA/GP Valencia LLC (9816). The location of the Debtors corporate headquarters and the service address for its affiliates is: c/o Innkeepers USA, 340 Royal Poinciana Way, Suite 306, Palm Beach, FL 33480.
15890634.2
their plan support agreement with Lehman and are currently the subject of extensive discovery in which the Ad Hoc Committee has been given the right to participate. 3. In short, rather than bringing sunlight and transparency to these cases, the
appointment of an examiner with the broad investigative authority proposed by the Ad Hoc Committee would do nothing more than duplicate the efforts already being undertaken by parties in interest at the significant expense of the estates and their creditors. Argument 4. Examiners may be appointed to conduct investigations into allegations of fraud,
dishonesty or mismanagement by a debtor: Specifically, section 1104(c) of the Bankruptcy Code provides that: at any time before the confirmation of a plan, on request of a party in interest or the United States trustee, and after notice and a hearing, the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor, if (1) such appointment is in the interests of creditors, any equity security holders, and other interests of the estate; or (2) the debtors fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000. 11 U.S.C. 1104(c) (emphasis added). 5. As a threshold matter, the Ad Hoc Committee cannot demonstrate that there exist
here the necessary statutory predicates for the appointment of an examiner. First, because each of the potential areas of inquiry identified by the Ad Hoc Committee is being pursued by either Midland (e.g., valuation, the plan support agreement) or the official committee of unsecured creditors (e.g., the 2007 purchase of the Debtors by Apollo Investment Corporation), an examiner would do nothing more than duplicate the efforts of those parties. Accordingly,
15890634.2
appointment of an examiner here would not be in the interests of creditors or equity security holders as required by /section 1104(c)(1). Second, upon information and belief, as detailed in the Debtors objection to the Examiner Motion, the Debtors fixed, liquidated, unsecured debts do not in fact exceed $5 million. Thus, appointment of an examiner is not required under section 1104(c)(2). 6. Even assuming that one of those statutory predicates can be met, the appointment
of an examiner is not appropriate where, as here, every angle of potential investigation is being vigorously pursued by other parties in interest. See In re Spansion, Inc., 426 B.R. 114, 128 (Bankr. D. Del. 2010) (denying appointment of an examiner as inappropriate where interests of unsecured creditors have been vigorously represented by official and ad hoc committees). The key dispute raised by the Ad Hoc Committee here is one of valuation, namely whether there is sufficient value in the various Debtor estates to warrant a recovery by preferred shareholders. In short, valuation is a matter to be contested by parties in interest at the time of plan confirmation, not by an examiner. See In re Visteon Corp., Case No. 09-11786 (CSS), Transcript of May 12, 2010 Hearing, a copy of which is attached hereto as Exhibit A, at 171:7-173:10 (Bankr. D. Del. May 12, 2010) (valuation dispute is not an appropriate area of investigation by an examiner). 7. Further, although courts in this district have held that the appointment of an
examiner may be mandatory when the threshold requirements of section 1104(c) are met, they have also acknowledged that the bankruptcy court may exercise its discretion to limit the scope of the examiners investigation and the compensation and expenses available to the examiner. In re Loral Space & Commcn, Ltd., 2004 U.S. Dist. Lexis25681 at *15-16 (S.D.N.Y. Dec. 23, 2004) (citing In re Revco D.S., Inc. 898 F.2d 498, 501 (6th Cir. 1990) (the bankruptcy court retains broad discretion to direct the examiners investigation, including its nature, extent and
15890634.2
duration); see also In re Erickson Retirement Communities, LLC, 425 B.R. 309 (Bankr. N.D. Tex. 2010) (appointing examiner with no duties, unless and until otherwise ordered by the court.). As noted above, all areas of the Ad Hoc Committees proposed examiner investigation are already being pursued in great depth by the various parties in interest. Accordingly, even if the Court determines that it must appoint an examiner, it should use its discretion to substantially limit the scope of such examiners mandate so as not to duplicate those parties efforts and waste estate resources. 8. The Court should view the Examiner Motion for what it is a leverage play by an
out-of-the money constituency and deny or, at a minimum, substantially limit the scope of, the relief requested. WHEREFORE, for the foregoing reasons and the reasons set forth in the Debtors objection to the Examiner Motion, Lehman respectfully requests that the Court (i) deny the Examiner Motion and (ii) grant such other and further relief as the Court deems appropriate. Dated: New York, New York August 23, 2010 DECHERT LLP
By:/s/ Michael J. Sage Michael J. Sage Brian E. Greer Andrew L. Buck 1095 Avenue of the Americas New York, New York 10036 Telephone: (212) 698-3500 Facsimile: (212) 698-3599
15890634.2
Exhibit A
15890634.2
UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE Case No. 09-11786-CSS - - - - - - - - - - - - - - - - - - - - -x In the Matter of:
VISTEON CORPORATION, et al.
Debtors.
- - - - - - - - - - - - - - - - - - - - -x
United States Bankruptcy Court 824 North Market Street 5th Floor Wilmington, Delaware
May 12, 2010 10:05 AM
B E F O R E: HON. CHRISTOPHER S. SONTCHI U.S. BANKRUPTCY JUDGE ECR OPERATOR: LESLIE MURIN VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400
2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400
HEARING re Debtors Objection to Proofs of Claim Filed by Visteon UK Pension Trust Limited (as Trustee of the Visteon UK Pension Plan) and the Board of the Pension Protection Fund HEARING re Tenth Omnibus Objection of Visteon Corporation and Its Affiliated Debtors to Proofs of Claim (Claims to be Adjusted (Substantive)) HEARING re Ninth Omnibus Objection of Visteon Corporation and Its Affiliated Debtors to Proofs of Claim (Amended Claims and Equity Claims (Non-Substantive)) HEARING re Eighth Omnibus Objection of Visteon Corporation and Its Affiliated Debtors to Proofs of Claim (Incorrect Debtor Claims (Non-Substantive)) HEARING re Seventh Omnibus Objection of Visteon Corporation and Its Affiliated Debtors to Proofs of Claim (Duplicate Note Claims, Duplicate Claims, and Cross-Debtor Duplicate Claims (Substantive)) HEARING re Motion for Relief from Automatic Stay Filed by Luther Gilford
3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
HEARING re Motion of the Official Committee of Unsecured Creditors to Terminate Debtors Exclusive Periods to File and Solicit Votes for Their Chapter 11 Plan HEARING re Debtors Third Motion to Extend Their Exclusive Periods to File and Solicit Votes for Their Chapter 11 Plan HEARING re Motion for Order Authorizing the Official Committee of Unsecured Creditors to File Emergency Motion of the Official Committee of Unsecured Creditors for Leave to Conduct Discovery Pursuant to Fed. R. Bankr. P. 2004 Under Seal HEARING re Emergency Motion of the Official Committee of Unsecured Creditors for Leave to Conduct Discovery Pursuant to Fed. R. Bankr. P. 2004 HEARING re Motion of Panasonic Electric Works Corporation of America for an Order Compelling Debtors to Assume or Reject Its Pre-Petition Contract HEARING re Motion of the Debtors for Entry of an Interim Order (i)Authorizing Use of Cash Collateral; (ii)Granting Adequate Protection to Pre-Petition Secured Lenders; and (iii)Scheduling Final Hearing
4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Transcribed by: Lisa Bar-Leib HEARING re Motion of Various Shareholders for an Order Appointing an Official Committee of Equity Security Holders HEARING re Motion of the Ad Hoc Equity Committee in Visteon Corporation for Order Directing the Appointment of Examiner Pursuant to Section 1104(c)(2) of the Bankruptcy Code
5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: JUDSON BROWN, ESQ. KIRKLAND & ELLIS LLP Attorneys for Debtors and Affiliated Debtors 655 Fifteenth Street, N.W. Washington, DC 20005 BY: ANDREW B. BLOOMER, ESQ. ANDREW R. MCGAAN, ESQ. JAMES J. MAZZA, JR., ESQ. KIRKLAND & ELLIS LLP Attorneys for Debtors and Affiliated Debtors 300 North LaSalle Chicago, IL 60654 BY: MARC KIESELSTEIN, ESQ. A P P E A R A N C E S : KIRKLAND & ELLIS LLP Attorneys for Debtors and Affiliated Debtors 601 Lexington Avenue New York, NY 10022
6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: HOWARD L. SIEGEL, ESQ. BROWN RUDNICK LLP Co-Counsel to Official Committee of Unsecured Creditors City Place 1 185 Asylum Street Hartford, CT 06103 BY: HOWARD STEEL, ESQ. ROBERT J. STARK, ESQ. BROWN RUDNICK LLP Co-Counsel to Official Committee of Unsecured Creditors Seven Times Square New York, NY 10036 BY: JAMES E. O'NEILL, ESQ. PACHULSKI STANG ZIEHL & JONES LLP Attorneys for Debtors and Affiliated Debtors 919 North Market Street 17th Floor Wilmington, DE 19899
7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: MARY F. CALOWAY, ESQ. BUCHANAN INGERSOLL & ROONEY LLP Attorneys for Ad Hoc Committee of Equity Holders The Brandywine Building 1000 West Street Suite 1410 Wilmington, DE 19801 BY: MARTIN J. BIENENSTOCK, ESQ. PHILIP M. ABELSON, ESQ. DEWEY & LEBOEUF LLP Attorneys for Ad Hoc Committee of Equity Holders 1301 Avenue of the Americas New York, NY 10019 BY: WILLIAM P. BOWDEN, ESQ. GREGORY A. TAYLOR, ESQ. ASHBY & GEDDES, P.A. Co-counsel to Official Committee of Unsecured Creditors 500 Delaware Avenue Wilmington, DE 19899
8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: P. SABIN WILLET, ESQ. AINSLEY G. MOLONEY, ESQ. (TELEPHONICALLY) BINGHAM MCCUTCHEN LLP Attorneys for Wilmington Trust FSB, as Administrative Agent for Pre-Petition Term Lenders One Federal Street Boston, MA 02110 BY: JANE M. LEAMY, TRIAL ATTORNEY U.S. DEPARTMENT OF JUSTICE Office of the United States Trustee 844 King Street Suite 2207 Wilmington, DE 19801
9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: DEREK C. ABBOTT, ESQ. MORRIS, NICHOLS, ARSHT & TUNNELL LLP Attorneys for Wilmington Trust FSB, as Administrative Agent for Pre-Petition Term Lenders and Mason Capital Management LLC 1201 North Market Street 18th Floor Wilmington, DE 19899 BY: AMY L. KYLE, ESQ. MICHAEL J. REILLY, ESQ. (TELEPHONICALLY) BINGHAM MCCUTCHEN LLP Attorneys for Wilmington Trust FSB, as Administrative Agent for Pre-Petition Term Lenders 399 Park Avenue New York, NY 10022
10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: STEPHEN S. LAPLANTE, ESQ. (TELEPHONICALLY) VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 MILLER CANFIELD PADDOCK & STONE, PLC Attorneys for Ford Motor Company 150 West Jefferson Suite 2500 Detroit, MI 48226 BY: MARC J. PHILLIPS, ESQ. KAREN C. BIFFERATO, ESQ. CONNOLLY BOVE LODGE & HUTZ LLP Attorneys for Ford Motor Company The Nemours Building 1007 North Orange Street Wilmington, DE 19899 BY: ALAN W. KORNBERG, ESQ. PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Attorneys for Mason Capital Management LLC 1285 Avenue of the Americas New York, NY 10019
11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: JEFFREY M. SCHLERF, ESQ. FOX ROTHSCHILD LLP Attorneys for Working Group of the Informal Noteholder Committee Citizens Bank Center 919 North Market Street Suite 1300 Wilmington, DE 19899 BY: STEVEN B. SMITH, ESQ. DECHERT LLP Attorneys for Law Debenture Trust Company of New York 1095 Avenue of the Americas New York, NY 10036 BY: R. CRAIG MARTIN, ESQ. EDWARDS ANGELL PALMER & DODGE LLP Attorneys for Law Debenture Trust Company of New York 919 North Market Street Suite 1500 Wilmington, DE 19801
12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: J. CHRISTOPHER SHORE, ESQ. ANDREW C. AMBRUOSO, ESQ. (TELEPHONICALLY) WHITE & CASE LLP Attorneys for Working Group of the Informal Noteholder Committee 1155 Avenue of the Americas New York, NY 10036 BY: THOMAS E. LAURIA, ESQ. WHITE & CASE LLP Attorneys for Working Group of the Informal Noteholder Committee Wachovia Financial Center 200 South Biscayne Boulevard Suite 4900 Miami, FL 33131
13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: ARTHUR H. RUEGGER, ESQ. SONNENSCHEIN NATH & ROSENTHAL LLP Attorneys for Cypress Management Master, L.P. and Goshawk Capital Corp. 1221 Avenue of the Americas New York, NY 10022 BY: CHARLENE D. DAVIS, ESQ. JUSTIN R. ALBERTO, ESQ. BAYARD, P.A. Attorneys for Cypress Management Master, L.P., Lenado Capital Advisors LLC and Goshawk Capital Corp. 222 Delaware Avenue 9th Floor Wilmington, DE 19801
14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: THOMAS MOERS MAYER, ESQ. PHILIP BENTLEY, ESQ. STEPHEN ZIDE, ESQ. KRAMER LEVIN NAFTALIS & FRANKEL LLP Attorneys for Aurelius Capital Master, Ltd., ACP Master, Ltd. and Aurelius Convergence Master, Ltd. 1177 Avenue of the Americas New York, NY 10036 BY: ROBERT E. RICHARDS, ESQ. SONNENSCHEIN NATH & ROSENTHAL LLP Attorneys for Cypress Management Master, L.P. and Goshawk Capital Corp. 233 South Wacker Drive Suite 7800 Chicago, IL 60606
15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: MARK E. FREEDLANDER, ESQ. MCGUIREWOODS, LLP Attorneys for Ford Motor Company 625 Liberty Avenue 23rd Floor, EQT Plaza Pittsburgh, PA 15222 BY: M. BLAKE CLEARY, ESQ. MARIS J. FINNEGAN, ESQ. YOUNG CONAWAY STARGATT & TAYLOR, LLP Attorneys for Aurelius Capital Master, Ltd., ACP Master, Ltd. and Aurelius Convergence Master, Ltd. The Brandywine Building 1000 West Street 17th Floor Wilmington, DE 19801
16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: ROBERT J. TENENBAUM, ESQ. (TELEPHONICALLY) AKIN, GUMP, STRAUSS, HAUER & FELD, LLP Attorneys for Informal Group of Noteholders One Bryant Park New York, NY 10036 BY: ANTHONY W. CLARK, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Attorneys for Visteon UK Pension Trustees Limited One Rodney Square Wilmington, DE 19899 BY: CARL N. KUNZ, III, ESQ. MORRIS JAMES LLP Attorneys for Nissan Trading Corp., USA 500 Delaware Avenue Suite 1500 Wilmington, DE 19899
17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: PATRICK N.Z. RONA, ESQ. (TELEPHONICALLY) DUANE MORRIS LLP Attorneys for Patrick N.Z. Rona 1540 Broadway New York, NY 10036 BY: PAUL N. SILVERSTEIN, ESQ. JONATHAN I. LEVINE, ESQ. (TELEPHONICALLY) ANDREWS KURTH LLP Attorneys for Ad Hoc Committee of 12.25% Noteholders 450 Lexington Avenue New York, NY 10017
18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: TINA M. TALARCHYK, ESQ. (TELEPHONICALLY) MCDONALD HOPKINS LLC Attorneys for Ad Hoc Committee of Investors 505 S. Flagler Drive Suite 300 West Palm Beach, FL 33401 BY: JOSEPH R. SGROI, ESQ. (TELEPHONICALLY) HONIGMAN MILLER SCHWARTZ & COHN LLP Attorneys for General Motors 2290 First National Building 660 Woodward Avenue Detroit, MI 48226
19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BY: JENNIFER HARDY, ESQ. (TELEPHONICALLY) WILLKIE FARR & GALLAGHER LLP Attorneys for Law Debenture Trust Company of New York 787 Seventh Avenue New York, NY 10019 BY: ROBERT A. BELL, JR., ESQ. (TELEPHONICALLY) VORYS, SATER, SEYMOUR & PEASE LLP Attorneys for Showa Aluminum 52 East Gay Street Columbus, OH 43215 BY: DANIELLE W. JUHLE, ESQ. (TELEPHONICALLY) GOLDBERG, KOHN, BELL, BLACK, ROSENBLOOM & MORITZ, LTD. Attorneys for Johnson Controls 55 East Monroe Street Suite 3300 Chicago, IL 60603
20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE CLERK: THE COURT: P R O C E E D I N G S All rise. Please be seated. Good morning. Marc
MR. KIESELSTEIN:
Good morning, Your Honor.
Kieselstein, James Mazza and Andrew McGaan on behalf of the debtors. Your Honor, on the agenda, there are only a few And in keeping
matters that are going forward, Your Honor.
with our regular practice, I'll just speak to matters that aren't withdrawn, adjourned or otherwise resolved. THE COURT: All right. I do want to point out, if I could, Item
MR. KIESELSTEIN:
a couple of items on the agenda, though, Your Honor. 16 -THE COURT: You are going to need --- is --
MR. KIESELSTEIN: THE COURT:
I'm sorry.
You're going to need to walk
me through the claim objection process, where we are with regard to those because I've received some papers -- first of all, I apologize. I have a cold so I don't sound so great. I
received the papers this morning but I couldn't quite figure out what I was supposed to do. MR. KIESELSTEIN: So --
Your Honor, I believe everything is
set to go with respect to orders being entered with the exception of the seventh omnibus claim objection where we'll be submitting a revised order, Your Honor, to pick up a couple of
21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
been -THE COURT: Consent --- agreed upon or claims withdrawn right. claims that were going to be expunged that actually should not be. THE COURT: All right. But with regard to the other
MR. KIESELSTEIN:
omnibus claims objections, as far as I know, Your Honor, the orders as submitted are final and ready to be entered. THE COURT: Well -- all right. Well, let's -- all
So start with 16. MR. KIESELSTEIN: So, with regard to 16, Your Honor,
and I don't know the detail but there will be a revised order because a couple of claims, I think, were mistakenly going to be expunged. order. And so, we're just going to submit a corrective
But other than that, there's nothing outstanding. THE COURT: So all the other objections are agreed or
there was no response? MR. KIESELSTEIN: Yes. All the other objections have
MR. KIESELSTEIN: or otherwise resolved. THE COURT: (Pause) THE COURT: Okay.
All right.
The eighth?
MR. KIESELSTEIN: No outstanding issues.
The eighth is the same, Your Honor.
22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
those. THE COURT: You need to walk me through that. So the THE COURT: figure out the orders. You got an order? I don't -- I couldn't
So I'm going to need some help. Oh, okay, Your Honor.
You have to walk me -We've got orders and we can submit
MR. KIESELSTEIN:
eighth, ninth, tenth, I'll be able to enter orders on a fully consensual basis? MR. KIESELSTEIN: right, Your Honor. THE COURT: Okay. All right. If you have them -- or That's correct, Your Honor. That's
we can do it at break or what have you -- oh, please approach. MR. KIESELSTEIN: THE COURT: me to sign? Yes. May I approach, Your Honor? Well, only one. How many you want So do you have
I don't need to see blacklines.
the ninth and tenth? bit.
This is the tail wagging the dog a little
But I want to make sure I've got it right. MR. KIESELSTEIN: THE COURT: We'll submit the tenth omnibus. Very good. And the seventh
All right.
will come under certification? MR. KIESELSTEIN: THE COURT: That's correct, Your Honor. All right. Well, I've signed
All right.
the eighth and ninth as agreed. MR. KIESELSTEIN:
I'll await the others.
And then, Your Honor, I did think
VERITEXT REPORTING COMPANY 516-608-2400
23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
All right. it merits pointing out item 20, the UK Pension claims objection. We did submit a stipulation last night signed by
the claimants and by the debtor essentially withdrawing those claims with prejudice, Your Honor. That's a significant open And that will
item that the debtors have been dealing with. now be withdrawn with prejudice. THE COURT: in my binder. MR. KIESELSTEIN: THE COURT: Yes. Well, you have that?
I don't have that
Can I approach, Your Honor? All right. Very good. Thank you.
I've signed the orders agreed. MR. KIESELSTEIN: Thank you, Your Honor. Your Honor,
I believe that that would take us to the only contested items that are going forward. And those are items 25 through 28.
With the Court's indulgence, I'd like to give a brief oral status report before we get into those matters. THE COURT: Okay. Well, I -- just so we're clear, I
did sign a cash collateral order this morning that was submitted under certification. MR. KIESELSTEIN: THE COURT: MR. STARK: Thank you, Your Honor.
I had 23 and 24 listed as going forward. Good morning, Your Honor. Robert Stark
from Brown Rudnick on behalf of the official creditors' committee. motions. Both of those matters are official committee We've adjourned them by consent to the next omnibus
24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
forward. hearing date. THE COURT: MR. STARK: THE COURT: that but that's fine. All right. So the agenda should reflect that. Well, the amended agenda doesn't reflect So we're up to 25? Yes. 25 is going
And what's going forward?
26 is continued. MR. KIESELSTEIN: THE COURT: 26 is continued but --
27 is going forward? 26 is going forward in the sense
MR. KIESELSTEIN:
that the joinders that were filed with respect to that committee motion, we agreed that we would treat as separate standalone motions to terminate exclusivity. debtors' motion to extend. So 25 is the
26 are the various joinders/motions
to terminate exclusivity that were filed by various parties. Obviously, the same nucleus of operative facts, Your Honor. those, I think, would be, more or less, taken up together. THE COURT: So who's got the burden of proof? We've got it on extension -So
MR. KIESELSTEIN:
extending and they've got it on termination. THE COURT: All right. I'm not sure how that works So either way -- all
but I guess the tie goes to the objector. right.
And then is the examiner motion going forward? MR. KIESELSTEIN: Yes --
25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
motion. THE COURT: All right. Okay. THE COURT: Okay. -- as is the equity committee
MR. KIESELSTEIN:
MR. KIESELSTEIN:
And the equity committee motion is
the only one as to which we anticipate that live testimony will be presented, Your Honor. THE COURT: would be fine. MR. KIESELSTEIN: Yes, Your Honor. We did not file a All right. Yeah. A status conference
written status report due in part to the crush of events of the last few days as well as the fact that a lot of the latest developments are a matter of public record. But very briefly,
Your Honor, as we have foreshadowed for a number of weeks now, the debtors have been working on and now have filed what we have been referring to colloquially as the "toggle plan". That
plan, Your Honor, in essence, contemplates a full backstopped rates offering whereby the bondholders would inject 950 million dollars into the company and the backstop parties would inject an additional 300 million dollars, a total of a billion two hundred fifty million dollars. That, in conjunction with 400
million dollars of exit financing that would be brought to bear would be sufficient to cash out the term lenders principal and accrued interest, Your Honor. In exchange for the injection of those funds, the
26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
bondholders -- subscribing bondholders/backstop parties would get ninety-five percent of the equity of reorganized Visteon. Nonsubscribing bondholders would get five percent of the equity pro rata on account of their pre-petition claims. All of that
would be subject to dilution for a management equity incentive program, Your Honor. plan. To the extent that those funds did not materialize or the exit financing was not available, except under very limited circumstances, the plan would toggle over to plan B which is a conversion of the secured creditors' claims in exchange for approximately eighty-five percent of the equity of reorganized Visteon, fifteen percent to the bondholders, again subject to dilution for a management equity incentive program that is quite similar as between the plan A and plan B constructs. Your Honor, in either scenario, existing equity interest would not receive a distribution as I'm sure you will hear from the equity holders today, Your Honor. We should note that the toggle plan is supported by more than two-thirds of the bondholder classes under the plan. We have plan support agreements executed and that's the subject of our pending motion before Your Honor that is not up today. I should note that the term lenders are not on board for the toggle plan. They have indicated, at least to date, that they Obviously, That is sort of plan A under the toggle
are not prepared to announce support for that plan.
27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
if the money materializes under plan A and they are taken out, principal plus accrued, it doesn't matter whether they're on board or not. They'd, in essence, be unimpaired. And if the
money doesn't materialize, the debtors' belief is that the term lenders would, in fact, end up voting for the plan. understand what they're saying today. nonetheless. With respect to the official committee, they are not on board yet. They do support the toggle plan construct and We are working And I
That's the debtors' view
I'm sure they can speak for themselves on that.
through some issues surrounding the claims reconciliation and resolution process and the role that a committee or a plan oversight committee would have post-emergence. its essence, the committee is supportive. Obviously, the equity holders are not any happier with the toggle plan than they were under prior plans. again, understandable. today's proceedings. Your Honor, we have, I think, obtained from the Court the 19th of May for a hearing on the disclosure statement for the modified plan, for the toggle plan late in the afternoon, I believe. We have also filed motions to approve the equity That's where the backstop obligation is That's, But again, in
And that theme will no doubt pervade
commitment agreement.
contained -- as well as a motion to approve the plan support agreements and the associated rights offering procedures. We
28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
is right. have filed the motion for shortened notice on that which we have not heard back from the Court on. From our perspective,
it makes for the total sense that those things be heard together given that those documents are sort of the backbone of the toggle plan A. Obviously, it's subject to your Court's -But I
Your Honor's schedule and the views of other parties.
think before we leave today, we did want to discuss now or later the timing around that so everyone can plan appropriately. And we would also like to discuss sort of the shape of the disclosure statement hearing, whether it's Your Honor's practice to have that be evidentiary. We obviously believe
mostly it's issues of putting additional language if parties want additional language so we can get the disclosure statement out the door. And again, I don't know what Your Honor's So I wanted to touch on those
practice is in that regard.
issues either to spark a discussion now or at the end of today's festivities. Honor. heard. THE COURT: MR. STARK: All right. Mr. Stark? Mr. Kieselstein And that's the debtors' report, Your
And I'll cede the podium to whoever else wants to be
Thank you, Your Honor.
We are not yet -THE COURT: MR. STARK: Move the microphones a little closer. Apologize.
29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE COURT: MR. STARK: THE COURT: MR. STARK: Okay. A little better? Yeah. The committee is not yet there in terms But we are supportive
of signing on a plan support agreement. of the deal.
And I do think that the issues that divide us now
are more in the nature of documenting and things of fiduciary allocation of risk and things like that. But I'm fairly
optimistic we'll be able to resolve those issues relatively shortly. I rise at three additional points that I think are important to make. Under the deal embedded in the plan, as Mr.
Kieselstein laid it out for you, he missed two points that I think are particularly important. First are the pension plans,
something that we spent an awful lot of time in this case before Your Honor talking about as being very important issues to be resolved under any restructuring, certainly from the creditors' committee perspective, but we think as a business as a whole. Those pension plans will be assumed under this plan.
And that's important. Second is the treatment of trade. The bondholders,
if they toggle to the rights offering and put their money to work, effectively putting their money where their mouth is, they'll own the company. the company. If not, the secured lenders will own They worked a deal.
The trade is immunized.
30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Willett? MR. WILLETT: Good morning, Your Honor. Sabin It's a fifty percent cash payment to them under either toggle. So that's a good deal for trade, too, which, in turn, will continue trade support for this company. And it's a very large
company; it's going to need that trade support going forward. So that's another very important aspect of this deal. Third point, which is not a particular deal term itself but I think is an important gloss, Mr. Kieselstein's eloquent style, I think, sometimes can be a little bit understated with respect to the enormous amount of work and time that's been dedicated by a virtual army of bondholders, accountants, lawyers, bankers, room that fill people to the point of spilling over, and very large Kirkland & Ellis rooms, negotiating hours on end for months on end to get us to this point. Cannot underestimate the amount of work that went into the development of the toggle plan and how important it is to this case. resolved. So I think our documentary issues will be But it is
I think this will be consensual.
important for every other aspect of today's events to realize that it is a monumental undertaking that got us here. should not be lost in the advocacy. THE COURT: Okay. Thank you. Anyone else? Mr. And that
Willett for the term loan lenders, today's dog at the garden
31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
morning. MR. BIENENSTOCK: Thank you, Your Honor. Martin party. And I say this now only because the subject of this We're really going to dive into these
toggle plan has arisen.
issues a week from today, I believe, if that's the schedule. But, in fact, this agreement doesn't ever toggle unless the bondholders want it to. And in fact, there is no equity
commitment ever to put up money that can be enforced because the agreement you're going to be asked to approve specifically cuts out any remedies. If we really had a deal that said put your money up or else we will toggle before the sun burns out, we would be supportive. But we don't have that. What we have is a recipe
for a long litigation over scores of obligations that the debtors don't have today but would undertake under these arrangements and more than a hundred million dollars in fees that don't need to be paid to accomplish the same economic objective. That's not here today although our hope that the
issue will swiftly be addressed informs the ticklish position we have on exclusivity today which is that we support it because we think we're going to quickly reach this divide point where the debtors move back to something more sensible. take that up when you hear the motion on exclusivity. you. THE COURT: Thank you. Mr. Bienenstock? Good We can Thank
32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Bienenstock for the ad hoc equity committee. Just one point at
this stage because we'll be getting into a lot more facts later, but parties saw fit to posture and spin things as they did so I wanted the Court to have our perspective. There are many facts today the Court will be able to take into account as a matter of record. One that I would
bring to the Court's attention now is the debtors' own admissions on page 11 of its newly proposed disclosure statement. That's a chart. And if that chart is taken at its
word, as presumably the debtor would have the Court do, it says that under the 8515 plan that had previously been on file, the return to two of the three groups of noteholders would be approximately twenty-five percent whereas after all this work Your Honor heard about, all this work, months on end, overflow conference rooms, according to the debtors' schedule on page 11 of its disclosure statement, the work resulted in those noteholders going down from twenty-five cents on the dollar to eight cents on the dollar. all that work. That's remarkable, Your Honor, with
And that compares to something else you'll hear
about later, Your Honor, that with the debtors saying these creditors are getting eight cents on the dollar under toggle A, the debt trades at principal plus interest, sometimes plus premium, so that people are buying the debt today to have a loss of ninety-two cents on the dollar and more. something very wrong here. There's
And all of the good feeling about
33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
proceed? cents. MR. BIENENSTOCK: We think it's more than a hundred all this work and we're so happy and it's consensual -- as Your Honor already knows, it's not even consensual with the term lenders -- it's easy to consent that everyone agreed they'll take money out of the equity's pocket. submit this is about. that later. And that's what we
Your Honor will hear a lot more about And we think
But that's the way we see the case.
from the debtors' admissions, from the Markit quotes, it's fairly obvious what's happening here. THE COURT: So the eight cents isn't really eight The eight percent recovery -
Is that what I'm hearing?
percent return of principal and interest. THE COURT: eight cent recovery. MR. BIENENSTOCK: And Your Honor will hear about a Right, even though they're only saying an
lot more about fees also coming out of the equity's pocket. But I don't want to jump the gun too much. THE COURT: No. That's fine. Thank you. Thank you. Okay. So how should we I just wanted to be
sure I understood the point. MR. BIENENSTOCK: THE COURT:
Anyone else?
Which motion first? MR. KIESELSTEIN: Your Honor, I think we should take
up the exclusivity related motions in the first instance, Your
34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Honor. And that's item 25 on the agenda. THE COURT: All right. I don't think that --
Before we do that, let me just -- 'cause The issue at a
you asked about disclosure statement hearing.
disclosure statement hearing is adequate information for purposes of voting. Unless there's an argument that the plan
is not confirmable on its face, which is a hard argument to make -MR. BIENENSTOCK: THE COURT: Okay. We'll give one, Your Honor. But it can be made. And I've --
I'm trying to remember. recently.
I know I had the issue fairly But I
And I think I may have made that finding.
don't remember what I did yesterday so let alone a couple weeks ago. But in any event, unless that's the issue, it's an
exercise in putting the information that the parties think is necessary in order to put their positions before the voters who are going to be sophisticated institutional voters. I don't
think there's any real question about that in this case given the issue with the trade being "immunized" and pensions being assumed. So, I just throw that out there. 4:00 on Wednesday afternoon. long as we can. It's scheduled for
We'll do the best we can to go as
But my feeling on disclosure statements is put
the language in that people need to have in that makes them
35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Honor. comfortable that the issue can be taken care of at confirmation. But if there are confirmability issues that are
legitimate that need to be addressed at the disclosure statement, we'll do that. And that -- depends on what those iss -- how those issues are raised as to whether they're legal or factual, probably legal, type of issues, but if you get into valuation, that, of course, opens up a whole can of worms. my thoughts on that. MR. KIESELSTEIN: Very helpful. Thank you, Your So those are
And, obviously, the plan as formulated, the equity That being said, we've invited
holders would not be voting.
Mr. Bienenstock and the various and sundry other equity groups to provide us whatever language they would like us to put in the disclosure statement. And our general philosophy is, fall
short of slander and defamation, we'll be accommodating with respect to the language they want us to put in. THE COURT: All right. Well, obviously, they're
impaired so their input is relevant. MR. KIESELSTEIN: THE COURT: Sure. Exclusivity.
All right.
MR. KIESELSTEIN:
Your Honor, on exclusivity, again, I think most of the issues
I agree with Mr. Bienenstock.
around exclusivity are not subject to factual disputes so much as they are is what the debtor has done during the course of
36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
disputed. the case -- does it equate to good faith progress toward a confirmable plan, progress in discussions with stakeholders, prejudice, pressure on stakeholders that's inappropriate. So,
Your Honor, I want to sort of focus mostly on those elements. We know there's a multi-factored test. our papers as have the others. We've laid that out in And I
I won't belabor that.
know Your Honor's views on tests that have more than three parts and we've got quite a few more than three here. A few of the factors are obviously not really The cases are large and complex. The debtors are We don't
paying their post-petition debts as they come due.
think it's disputed that the debtor needs more time to go forward with disclosure statement approval, solicitation under the toggle plan. Honor. That's just a function of the calendar, Your
And in that regard, by the way, we have circulated to
the parties -- it's not up to date, of course -- a proposed pre-trial schedule to get from a disclosure statement approval hearing to a confirmation hearing and laid out all the discovery milestones in between. But, Your Honor, what's really in dispute here are the factors, again, that go to good faith progress in negotiating with stakeholders and the issues of prejudice to creditors. And again, I think the evidence is clear -- or the
facts are clear and not disputed that the debtor has run a very open and transparent process. The debtor has been engaged in
37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
dialogue with virtually all parties up and down the capital structure. Our data room is crowded with virtual people We've
walking around looking at data, looking at information.
got from equity holder financial advisors, equity holder law firms, multiple law firms, creditors' committee, bondholder backstop parties, and upwards of a dozen parties that have signed NDAs and have had free and unfettered access to our data. Our management team has made itself available to engage
in discussions with stakeholders up and down the capital structure. As Mr. Stark alluded to, and I was going to get to
it in this context, the production of the toggle plan, in particular, was generated through weeks on end of round-theclock discussions and negotiations amongst the various parties. And I can tell you the bondholder parties are not unitary in any sense of the words. There are three separate issuances of
bonds, separate counsel that we've been dealing with, again, on an almost constant basis. So, Your Honor, in terms of progress in the cases, we think we've made very substantial progress in the cases. Obviously, from the perspective of equity holders who are getting nothing under our December plan, our March plan or this toggle plan, that doesn't equate to progress. But I think it's
pretty clear that that's not the acid test for whether a party is entitled to an extension of exclusivity or the higher burden of whether exclusivity should be terminated. There's reams of
38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
case law -- I won't repeat it. It's in our papers -- that
unhappiness with valuation does not constitute grounds for not extending exclusivity or for terminating exclusivity. What we
have here, and it's all through the papers of the various equity groups, is a good old-fashion valuation dispute in the making. But I think the -- where the equity holders fall down in their argument is that they equate acquiescence with their view of value as good faith progress in the case. They equate
acquiescence with their view of value as good faith meaningful discussions with stakeholders. They equate acquiescence in
their view of value with -- or the failure to acquiesce as undue pressure or prejudice to various parties. And again, the
case law, I think, has rejected the viewpoint that a disgruntled party unhappy with a valuation or a distribution is therefore entitled to terminate exclusivity. Now, here, unfortunately, the equity holders have taken it one step further. a valuation dispute. They've said this isn't really just
It's so self-evident that the equity
holders are in the money here that the fact that the debtor is not recognizing it can only mean that they are blatantly breaching their fiduciary duties, that they are in cahoots with the term lenders and/or the bondholders or that they have sold their soul first to the term lenders, now also to the bondholders as management to enrich themselves with a
39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
management equity incentive plan as if Mr. Bienenstock, Mr. Wolfson and Mr. Mayer, the counsel for the various equity groups, have never heard of a management equity incentive program. Your Honor, these sorts of twisting a valuation dispute, and I don't attack the good faith of the equity holders in making their assertions that they're in the money. They're entitled to their view and they'll have their day in court. But the fact that we don't agree with them does not It means we don't
mean that we are up to something nefarious. agree with them, Your Honor.
And that's what valuation
disputes and confirmation trials are meant to deal with. So, again, I think their emphatic unhappiness, how ever loudly stated, with our valuation simply does not translate into any basis for not granting an exclusivity extension when the debtor has been working round-the-clock with its stakeholders, those who are in the money and talking to those who are not, to try and get to a confirmable plan. We
think we've made very substantial progress in a very large case in a volatile industry while doing an operational restructuring over these past eleven months. And we think we've clearly
merited an extension of exclusivity to take the next step. Your Honor, a couple of other arguments that are made by the equity holders is that if you open up the process that's more efficient. Let the market speak. Let's just have plans
40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
come in from all sides and may the best plan win. And the
problem with that argument is, of course, there's no limiting principle to that argument. Congress clearly determined that
it was appropriate to give the debtor the right of exclusivity. And the Courts have clearly interpreted the for cause on extension to exclusivity to say that if a debtor is making progress in the case, satisfying these various factors, it's absolutely appropriate for the debtor to maintain continued exclusivity. The theory that open it up is one, if you take it to its logical extension, there ought not be exclusivity at all. There simply ought to be a debtor files a case and any party that thinks it has a better mousetrap ought to be able to come in and file a plan because then the market will speak. And
again, that is simply contrary to what Congress and the cases indicate which is that there is a value to having the debtor maintain an exclusive right that it is the best way to get parties ultimately in the same room to have them focus on a plan or a construct and try to get to a consensual deal. Sometimes it's possible to get there, sometimes it isn't. Sometimes a debtor doesn't make progress and is floundering, has not filed a plan and it's appropriate for exclusivity not to be extended. We think this is, by no means, that case.
And I would point out a couple of cases that are cited by the equity holders. And strangely, they cite 203
41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
situation. North LaSalle. They cite that -- it might be the first
recorded case of equity holders citing 203 North LaSalle for the proposition that exclusivity should be terminated. And I
think the way they do it is they simply selectively quote from that case. The quote that they use in their papers is the one
that says "Under a plan granting an exclusive right making no provision for competing bids or a competing plan, any determination that the price was top dollar would necessarily be made by a judge in bankruptcy court or as the way to determine value is exposure to a market." Okay. That's an interesting sentence. The previous
sentence, which they don't quote for some reason, says the following, and I quote: "It would, of course, be a fatal flaw
if old equity were to acquire or retain the property interest without paying full value. It would thus be necessary for old
equity to demonstrate its payment of top dollar but this it could not satisfactorily do when it would receive or retain its property under a plan giving it exclusive rights and in the absence of a competing plan of any sort." So 203 North LaSalle is, I think, the inverse of our Here, we have a plan where senior creditors are
bringing over a billion dollars of capital to the table taking the risk, also, that they will be able to procure 400 million dollars of exit financing 'cause if they don't, the plan would toggle to the plan's conversion plan. And certainly, given the
42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
equity holders' view that this company has almost limitless debt capacity, they would not view 400 million dollars of equity (sic) financing as a risk. So we have here a fully
baked plan as compared to what the equity holders purport to have which is nothing. They think they're in the money but
they've brought no capital to bear other than the very small investment needed to purchase distressed stock at very low prices. Not that there's anything wrong with that, it's
perfectly appropriate, but that's what's gone on here, Judge. But they've not brought any capital to bear nor have they offered to bring any capital to bear. In fact, one of the
joinders -- I think it was the Cypress group, if I'm not mistaken, said this about termination of exclusivity. "The
termination of exclusivity will serve to further encourage alternative financiers and investors to expend time and money working with any official committee of equity security holders which may be formed in these cases since there will be a real possibility of proposing an alternative plan." I translate
into -- that into we have nothing and we are nowhere. Now, even if they had a plan, I don't think they'd be entitled to not have exclusivity extended here or to terminate it. But the fact is they don't. And it goes sort of to the
efficiency point that it'll be more efficient and quicker to let other plans proceed. The fact is, they've come to the
debtor with nothing substantive, Your Honor.
43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
I would say that if exclusivity were not extended, we do know the creditors' committee has a full reinstatement plan that they've talked about. variation on a plan. We know the term lenders have a
Perhaps one or two or three of the equity
groups that don't appear to necessarily coordinate have plans of their own somewhere. They haven't shared them with us. So
a welter of potentially competed plans as a more efficient process? I don't think the cases support that. In fact, the
cases say that the competing plan process is likely to have greater cost, greater inefficiencies. be the case here. One other case, I think, is worth mentioning and that is the Pliant case that was cited in connection with termination of exclusivity. Now, in Pliant, the senior And that certainly would
creditors of the debtors' plan was highly contingent whereas the plan that junior creditors had brought to the table had fully committed financing. And Judge Walrath noted that the
debtors' refusal to engage on the more developed, more committed plan was clearly inappropriate and grounds for terminating exclusivity. opposite facts hold here. Again, they cite that case but the Here, we have a plan that is fully
baked, the one that we put forward with Your Honor, one with capital being brought to bear. And we have something -- I
wouldn't call it half baked because that would be giving it too much credit. We have something not baked at all from the
44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
equity groups which they claim that they would like to proceed on. So, Your Honor, I think the debtors' transparent activities to date, running this case, engaging in dialogue with virtually all parties, satisfies those core elements of the test: good faith progress toward a confirmable plan; good
faith discussions and negotiations with stakeholders; lack of undue pressure or prejudice on parties. And so, I think this
case is manifestly clear that the debtors have earned the hard way the right to have a further extension of exclusivity. Just one final note on the cases again that were cited by the various equity holders. A number of cases were
cited where, in fact, exclusivity was granted, the Mirant case and others, because the Courts noted that under the facts -after you get by what Mr. Bienenstock refers to as the platitudes -- under the facts of those cases, there was, in fact, substantial progress that was made toward a plan. We know that in the absence of some arrangement with the equity holders, we will have a valuation fight here. Bienenstock and others have expressed supreme and serene confidence about the outcome of that dispute. that we're correct. We feel strongly Mr.
We think the best thing to do here is to
maintain exclusivity, go forward on the disclosure statement, put in the language they want to put in expressing their views, give a reasonable timetable for getting to confirmation, and
45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
then let's have at it and the chips will fall where they may. That's the classic valuation dispute. It's appropriate that we Thank
go forward under exclusivity to get from here to there. you, Your Honor. THE COURT: the debtor? MR. STEEL: Good morning, Your Honor. You're welcome.
Anyone else in favor of
Howard Steel,
Brown Rudnick, on behalf of the official creditors' committee. Your Honor, we filed our motion to terminate exclusivity because we want an alternative plan that unsecured creditors could get behind. freshly filed. Well, now we have an alternative plan That remains to be seen. As
Is it perfect?
Mr. Stark spoke to it, we still have some issues that we're negotiating but in this context, it's provided cause for us to continue our motion to terminate exclusivity. Now, the three equity groups, also fresh to the case, seek to step in our shoes and take up our motion to terminate exclusivity or, conversely, block the debtors' brief request for extension of exclusivity ostensibly to file their own plan in these proceedings. From the committee's vantage, their
efforts should be denied and exclusivity should be maintained because of three key points: first, as Mr. Kieselstein alluded And extending This is our third It's been an open
to, substantial progress has been made.
exclusivity will move these cases forward. cut at a plan. We're getting better here.
46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Willett? plan process. We're building momentum to confirmation and any
exclusivity will just disrupt this process right now. And then, speaking to confirmation, as Mr. Kieselstein did, the equity groups coop some of our arguments but their main arguments are that they don't agree with the valuation, that they don't agree with the equity -- the management equity incentive program, the other incentive gifts to management. These are confirmation issues and we agree with
the debtors' proposed scheduling to deal with these issues as a valuation dispute at confirmation. Finally, unlike the creditors' committee with our motion to terminate exclusivity and unlike the freshly filed toggle plan, the equity hasn't come with a viable alternative plan construct. They have initial musings of a highly
leveraged plan but there's nothing viable that's going to move these cases forward. The committee says let's maintain Thank you. Mr.
exclusivity for now and move these cases forward. THE COURT: You're welcome. Anyone else?
I'm sure you'd agree it's been an open process. MR. WILLETT: Well, Dean Rosovsky at Harvard College
used to say, Your Honor, "Students say I'm not responsive but am responsive. I say no." So we think of Dean Rosovsky when
we speak to Kirkland & Ellis recently. But, Your Honor, we're in, as I said, a somewhat unusual position here as, twice now, the bridesmaid abandoned
47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
at the altar. But still, we think as a practical matter, as
frustrated as we may be with that process, extending exclusivity is better practically than not. If you terminate
exclusivity, you're going to have four plans pretty quickly, I think. You're going to have ours. I'm sure you'll have a And
committee plan.
You'll have, I assume, a debtor plan.
you'll, at some point, have an equity plan or a bunch of motions asking for more time to get to one. And in the
construct of four plans, you're going to litigate the same valuation issue that you'd have in one. practical. Another point that I hope doesn't get lost in all of this is that as much as we, in the capital stack, fight with each other, it is a good thing that management have been as successful as they have been with the operations. A four-plan That doesn't seem very
chaotic approach could only distract from what has been, in the short term, operational good news. be well served by that. Your Honor, as a practical matter, we don't like, as I said, this toggle plan. But we think that within seven days, And none of us is going to
when Your Honor has a chance to penetrate the support agreements that are proposed, it's really much more about that than the disclosure statement hearing because those support agreements irrevocably set the debtor on a path with the toggle plan at great expense. And so, in seven days, we're either
48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
going to know that you disagree with us on that and that's the path we're on and at least we will move forward on that path, or you will agree with us which I think will leave the debtor with the obvious alternative of accomplishing exactly the same economic objective by which all of the bondholders get exactly what they could get under the toggle plan by exercising options to take away our equity. Either way, you'll have a way to move
forward with a plan and for Mr. Bienenstock and his friends to be heard on the valuation issues. So with that, we would Thank you. Anyone else?
encourage you to extend exclusivity. THE COURT: Mr. Bienenstock? MR. BIENENSTOCK:
Thank you, Mr. Willett.
I'm going
to proceed first by addressing burden of proof, of course subject to the Court's comments; and then making a case why exclusivity should be left expired; and then addressing some of the points that the other counsel have made. THE COURT: Very good. Burden of proof. As I understand
MR. BIENENSTOCK:
it, we're living in a bridge period.
The burden of proof is
clearly on the debtor or anyone else asking to extend exclusivity and it's just as simple as that. Now, one overarching comment before I get into the facts and why the burden has not been carried. With all of
Your Honor has heard about efficiency and cost and expense and
49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
we don't want disruption and it's all about valuation, nobody has answered a fundamental question. If valuation comes out in
my client's favor and we only have their plan on the table, there's no plan to confirm. But if we have our plan on the
table based on solvency, which means, of course, that everyone else is being paid in full in one form or another, then if we win valuation, the company's out of bankruptcy and we go forward. And all of these people asking for Your Honor to
continue exclusivity, while they talk in terms of efficiency and speed and this, that and the other, they're asking Your Honor to embrace the solution that means there's no efficiency or speed unless you make all the findings that they say you're going to make. But assuming that the Court, at this point,
can't know which way it will come out, and Your Honor sees there's powerful market evidence that we are right, it would seem that from the Court's point of view, the Court should adopt a solution so that whichever way it finds on valuation, there's a plan to confirm. exclusivity stay terminated. Now, I mentioned that there is some unique facts in the case that we think bear on this motion. I mentioned That's one powerful reason to let
earlier the very remarkable and amazing fact in the debtors' disclosure statement, their -- all this work, the debtors are contending that toggle A has brought down the noteholder return from approximately twenty-five to eight for two of the three
50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
series of bonds. to twenty-five. For the third, it brings it down from fifty That's the series of bonds that has recourse
against more entities. In the Jefferies exhibit, that is Exhibit C to the motion dated April 16, 2010, to establish an equity committee motion, Jefferies presents the Markit evidence showing that these unsecured claims are trading at above par, Exhibit A, page 2, to their omnibus response dated April 27, 2010. So, if we just look at the environment, what the debtor is asking the Court to believe is that sophisticated people who were in the data room who signed the confis brought their return down and everyone buying debt today, which their plan support agreement allows them to do, is buying it so that they can pay, say, 110 cents on the dollar and receive eight. That alone, Your Honor, should, we think, demonstrate that something is wrong here. And one of the best ways to deal with
something wrong is to let there be competing plans so when the Court gets to the bottom of it, one plan will have it right. A second fact we ask the Court to take note of for this exclusivity motion is an admission that the debtor makes in its opposition to our examiner motion which will come up later. But the debtor's admission is relevant to this motion.
At page 9, paragraph 15 of its April 30, 2010 objection to our examiner motion, the debtor says that the Delaware Supreme Court's Gheewalla decision "clearly held that when a company
51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
becomes insolvent, the company's fiduciary duties shift from its shareholders to its creditors who would receive any increase in value". We explained in our reply, and I won't get into an extensive discussion of that now, but the debtors' reading of Gheewalla is wrong. But for purposes of this exclusivity what the debtor thinks. And
motion, only one thing matters:
what the debtor thinks and it has now announced to the world in its filed pleading is that it has no further fiduciary duties to the shareholder class. Given that that's the debtor's
mindset, what protection do we have in this case, the only protection we can have to get a distribution is if we are able to put a plan in front of the Court that gives it to us because the debtor has said no fiduciary duties to you. you're insolvent. Not only has the debtor determined that it's insolvent and it owes no duties to the shareholders but, as Your Honor has already heard, it has now entered into yet another plan support agreement asking this Court to approve it. The plan support agreement basically locks people in. It locks We think
creditors into, we think, illegally accepting the plan before there's an approved disclosure statement. debtor in. And it locks the
And, of course, the debtor will say that there's a But let's face it. The debtor is trying, to
fiduciary out.
the limits of the law, whatever they are, to put itself in a
52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
position where it cannot propose a different plan. whole intent of a plan support agreement. That's the
That's what the Whatever the
creditors wanted to make sure that happened.
limits of the law are, they don't want the debtor to be able to acknowledge equity in this case for my clients. And the debtor has created artificial limits. Mr.
Kieselstein said before that we haven't come up with anything and that's just wrong. What he should have said is the debtor
has arbitrarily determined that it will not suffer any plan now with more than 400 million of debt and therefore, every type of reinstatement option or other plan option that we have suggested in written letters to the debtors' board of directors has summarily been rejected. come up with anything. It hasn't been that we haven't
Your Honor, we can raise money to pay
off the secured debt; maybe give them a security so that they're still impaired and they can vote to accept the plan; give the noteholders debt for a hundred cents; and keep the equity for shareholders. It's not hard. What's the
significant fact here is the debtor has arbitrarily said no. And why did they say no? Several parties, Your Honor, have
remarked about a statement that an attorney for Ford made in this courtroom approximately a month ago that Ford would like to have its suppliers without debt. I've never seen an
attorney's statement of hearsay without a client to crossexamine be given so much weight. No debt because an attorney
53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
before. for Ford said that's what it prefers. other suppliers have debt. Ford has debt. Its
That same attorney acknowledged It takes years
Ford can't leave Visteon if it wanted to today.
and years to have another company have the same tooling, get the safety certifications, everything involved in making important parts for automobiles. But they've established their arbitrary position. They don't want a plan with debt. So they simply reject every And, of
viable legal option that the equity comes up with.
course, they don't change their projections barely at all to acknowledge that they've underprojected up until now all the operating results and therefore they have hundreds of millions more in cash than they projected they would have, the same with their operating results, but their projections barely change at all. Cost and expenses. The debtors' omnibus objection
dated May 5, 2010 to any termination of exclusivity talks about costs and expenses. They say at page 8, paragraph 16, that
"the equity holders fail to acknowledge the cost of their proposals." Mr. Kieselstein attributed to me the word "platitude" I think we're now on something that at least we can The platitude that the debtors
agree on what a platitude is.
are proffering to the Court, Your Honor, is that, well, two plans is more expensive to process than one -- are more
54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
pleadings. easily. expensive to process than one plan so termination of exclusivity would lead to costs and expenses. I think that can be debunked, Your Honor, fairly Let's first look at what are the debtors' costs and There are two sets of The
expenses in its currently filed plan.
major eye-popping, off-the-charts, costs and expenses.
first is that they have this equity committee agreement Your Honor has heard reference to earlier which has approximately forty-five million dollars in fees for investors to agree to buy stock at approximately twenty-seven dollars and change per share, the same price that the noteholders get to subscribe to without being paid anything for it. So they're being paid
forty-five million dollars for what most people will do for free. Plus, they're being paid, according to that agreement,
over sixteen million dollars of reimbursement of expenses probably to avoid 503(b)(3) applications. But they've
basically imposed a cost in that toggle A of over sixty million dollars. Cost number 1. Cost number 2. Nowhere mentioned in the debtors'
There's a Rothschild engagement agreement in this
case entered into presumably somewhere close to the outset. And it has a schedule of fees. Thirteen million of there's a
completion, one percent of secured debt raised, five percent of equity raised. Well, in their plan, their toggle A, they're
raising at least a billion and a quarter, one and a quarter
55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
So now -THE COURT: That's my kind of fee. -- let's add it up. The debtors' billion of equity that creates a 62.5 billion dollar fee to Rothschild. This is -You said billion. Million. Million? Sorry.
THE COURT:
MR. BIENENSTOCK:
Yes, Your Honor.
MR. BIENENSTOCK:
toggle A plan has sixty million plus of expenses for their equity commitment letter. And then, if that plan is the one
that's confirmed, and that's the one that the noteholders want and they're all shooting for, then there's another approximately eighty million but at least the 62.5 million to Rothschild for this equity raise that most people would do -would just want to have because they're buying stock at the low market value. So you have the sixty plus the 62.5, 122.5 That's nowhere mentioned in the debtors'
million in expense. calculations.
When we come up with a plan that will basically repay the secured debt along the lines I mentioned earlier, give a new note for the unsecured debt, maybe give them some stock, too, there are no fees for that, Your Honor. advantage of 122 million dollars. We start with an
So if they want to talk
costs and expenses, their 122 million dollars far exceeds any additional attorneys' fees in processing two plans at once. And as I said earlier, by processing our plans simultaneously,
56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
if we win valuation, at least there's a plan to be confirmed. Otherwise, there's nothing and the case goes back to square 1 and there's an -- they will probably ask to continue exclusivity even more if they say they'll get it right on the fourth time. The debtors also acknowledge at the same page 8, paragraph 16, of their May 5 pleading, they prefer to battle valuation with the equity than with the bondholders. And
they'd rather not battle reinstatement with the secured debt. Your Honor, that's nice if the objective is what is the easiest job for the debtors' professionals. But if you're equity
that's losing a lot of value by not reinstating, it's terrible. So they want to save a few million dollars by having -- by not having, in their view, a tough valuation battle so that we lose out hundreds of millions in equity? There's a point, Your
Honor, at which saving money is no excuse for not fulfilling fiduciary duties and maximizing value. And that's another problem, Your Honor. There is --
the debtors aren't saying they have the best plan, they have a plan that maximizes value. plan that may be confirmed. the examiner motion. They're just saying they have a And we'll get more into this in
But we, as equity, need the best plan, a
plan that maximizes value and they don't even want us to be able to propose it. The term lenders, Your Honor, filed either yesterday
57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
or the day before their own pleading talking about the ridiculous expenses to Rothschild on the toggle A. I just
mention that to show Your Honor this isn't something unique that only we see it that way. They've already gone on record
they see it the same way, except we are particularly sensitive to it because it's coming out of our equity. I mentioned earlier as Your Honor was expressing the likely approach of the Court to the disclosure statement hearing that we did have objections showing the plan unconfirmable on its face. And I realize the disclosure But I think it is relevant for
statement hearing is next week.
the Court in the context of this exclusivity hearing to know that the plan filed is unconfirmable on its face. And although
I gave my clients a three-page memo listing about twenty issues of importance, I'm only going to mention one now. The class, Your Honor, in their currently filed plan, the unsecured noteholder class -- there are two of them. One
for two series of the notes and another class for the third series -- is supposed to provide each claim the same treatment based on Section 1123(a)(4) of the Bankruptcy Code. does their plan do? Now what
Their plan says you all have unsecured
note claims but if you're an accredited investor, you get treatment A -- has to do with some portion of the stocks, subscription rights, et cetera. If you're not an accredited Then it
investor, you get treatment B, no subscription rights.
58 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
says -- not in the plan, but in an -- in their equity commitment agreement that they filed. It says if you're on
this list of our investors then we're going to pay you the sixty million dollars I talked earlier for you to buy stock on the same terms we're allowing the noteholders and the classified stock. So if you're a really lucky noteholder in And if you're You can That is
that class, you get part of the sixty million.
accredited, you then get more subscription rights. have three different treatments in that same class. facially unconfirmable on its face.
And there are lots of
other things in there but I won't bore you -- the Court with it now. Debtor has also in that plan done everything possible so that it will avoid review. There's no ten-day stay; the
conditions precedent can be waived; you don't necessarily need a final order if they don't want one. Everything is postured,
Your Honor, so that if they can convince this Court of the valuation, they can make any review moot. Now, I realize some
judges sort of like that on one level, but I don't -- I'm appealing to Your Honor as, Judge, that's just not fair. They
talk about leverage that we're asking to terminate exclusivity for an examiner as leverage. How can you have more leverage
than using the unlimited resources of the estate as a practical matter on their side to litigate against us to agree to pay people sixty million to take stock for the same price other
59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
people are going to buy it for free, pay your financial advisor eighty million dollars to testify that their valuation is correct -- and they only get 62.5 of the eighty if Your Honor agrees with them. And then they turn around to us and they say They couldn't have created And they did
we're asking for this for leverage?
more leverage against the equity if they tried. try which is why they basically hit the jackpot.
Now, on these factors -- I think when Mr. Kieselstein accused me of -- or foreshadowed my objection that his basis to extend exclusivity was platitudinal, he was referring to my response that he might have heard in other cases to these factors. case? I really call them the scoring system. Have we made progress? Is it a big Your Honor,
Is it complicated?
I submit that there is no case where the Court could ever not extend exclusivity if that's scoring system is the law because you can't have a big case without those factors being present. And if people do half of what they're supposed to do, they're going to add up the points in the scoring system. I would, as an analogy, offer the Court what the Third Circuit said about the scoring system that was urged on it in the Owens Corning case on substantive consolidation. There are a lot of bankruptcy courts that said when you consider whether estates should be consolidated because of hopeless commingling, do they have the same address, do they have overlapping directors -- said, well, any corporation like
60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Visteon is going to have the same address, overlapping directors, same name, same letterhead, et cetera. And you're
going to add up the points and say, hey, we're entitled to some comp. Third Circuit said that's ridiculous. This is equally ridiculous. The inquiry here is not
how many points you can score on that scoring system, big case complicated. The inquiry is what purpose is exclusivity Notably absent from the
supposed to serve in the first place. debtors' presentation.
The purpose, Your Honor, is to avoid There are cases where the secured
unnecessary liquidations.
creditors could acknowledge up front that they can get paid in full by liquidating their collateral. propose a plan that does that. And they would want to
With all the jobs being lost,
the other creditors not being paid, value not being maximized, the economy and the nation losing the debtor as a competitor factor, that's a reason to extend exclusivity, when someone's standing here saying I'd rather liquidate. When someone's not
asking to liquidate, and nobody here is -- everybody's going to operate this company going forward -- what is the reason not to allow multiple plans? The only reason I can think of is
because the debtor would like to put the Court in a position, basically leverage the Court, to say, Judge, if you don't confirm our plan there is no plan on the table for your to confirm. And you'll hear more, Your Honor, about management
saying, you know, this is staying in Chapter 11 is hurting our
61 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
to lose. MR. BIENENSTOCK: Thank you, Your Honor. Now, I business. So what they're saying is Your Honor should have no
option and that should cause Your Honor to decide close questions for them or just say, well, I better confirm their plan because that's the only way out of Chapter 11. THE COURT: Well, if they argue that, they're going
think I just want to respond to the debtors and others' points, but I haven't yet responded. As I noted, we have proposed plans to them even in writing to their board. debt. They simply reject anything that has They've basically said
I mentioned the scoring system.
they owe no fiduciary duties to equity, because they think they're insolvent. They accused us before we said anything about complaining about their plan because of the management incentive program. Your Honor, the management incentive
program, if it's geared to their valuation, will not produce what the Court thinks it will because if the Markit's valuation of the company is right, a hundred cents plus accrued, plus premium, as opposed to their eight cent, the management incentive program will produce about twelve times the value or more than what it's supposed to produce. And I want to make a point, both vis-a-vis management and Rothschild and everyone else getting these fees, it is not
62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the intent of my clients to impugn the integrity, motives, et cetera, of any of these parties. At the same time, it is
extremely material and relevant for the Court to know what people have at stake economically. What are the economic So it is
pressures on them to support a given position?
relevant without any comment -- certainly, any negative comment about character or integrity to know that if their valuation is accepted by the Court, the value of the management incentive program to the employees could be over twelve times what they say it is. Similarly, if Rothschild's valuation is accepted,
they just happen to get another -- an extra 62.5 million under toggle A. Similarly, the investors who are agreeing to buy the
stock at the below market value at sixty million benefit by that much. Those economic pressures have to be acknowledged.
And we think they are yet an additional factor why to get the Markit testing, the Supreme Court was talking about in LaSalle, you need someone else, someone whose incentive it is to save money for the estate, because it's our equity, to propose our own plan. And that's really the response to LaSalle. What the
court was saying how do we know if the bankruptcy court's valuation of a building is right, of the equity left after you pay off a secured claim? Let's try to get a Markit test.
Well, and they mentioned, they didn't give much guidance as Your Honor knows, but one guidance the Supreme Court gave is to
63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
plans. how to get a Markit test, let someone else propose a plan, let's see what they'll do. Well, we're here, Your Honor.
Mr. Willett referred to the chaotic approach of four I always love his prose, et cetera, but Im willing to
bet that this Court knows how to preside over any competitive plan process, and we will not have chaos. And as I mentioned earlier, if our plan is confirmed as opposed to theirs, the estate starts off with a saving of over 120 million dollars. Thats a pretty powerful reason to
have our plan on the table at the same time. Unless the Court has questions, that's all I have, Your Honor. THE COURT: MR. BENTLEY: No, thank you. Good morning, Your Honor. Phillip
Bentley of Kramer Levin on behalf of several funds management by Aurelius Capital Management. As I think Your Honor knows, we have filed a pleading opposing the debtors' motion to extend exclusivity. We also
filed a joinder to the committee's prior motion to terminate exclusivity, which the debtors have agreed to treat as a motion by us to terminate exclusivity. Your Honor, we support the arguments that were eloquently advanced by Mr. Bienenstock, and I won't repeat them. What I'd like to do, Your Honor, is to underscore one I guess the second
point that he made, and add another point.
64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
point he touched on very briefly, but I'll expand on it more extensively than the first one. The first point that I'd like to underscore was one of Mr. Bienenstock's principal points. And that is we don't
have here, Your Honor, just a dispute over valuation among the parties' experts. We have a case where the Markit has
resoundingly rejected the valuation on which this plan is predicated. As Mr. Bienenstock mentioned the eight percent
recovery that is given in the disclosure statement for noteholders under the rights offering subplan could not be a more striking contrast to the trading prices of those bonds, which are now trading at more than 110 cents on the dollars. So if Your Honor follows the principles that have been announced by the Third Circuit in the Campbell's Soup decision that the Markit's judgments are to be given great weight. And that when you have competing experts on value
there may often be grounds for a lot of skepticism about their arguments. indicator. The market on the other hand is an objective And the judgment of the market as to the value of
the stock -- reorganized debtors' stock that the noteholders will be getting under this plan, could not be more divergent than the value that the debtors are giving to it. And Your Honor may have noticed, we have heard in the papers and in Mr. Kieselstein's presentation, we've heard no explanation from the debtors as to that disparity. No
65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
explanation as to why the market is wildly off in their view, wildly off in how it values the debtors' enterprise value, and by extension the stock that will be issued by the reorganized debtors. So that's point one, Your Honor. The second point
Id like to make, and again, I think Mr. Bienenstock mentioned this in passing, is not only do we have a succession of plans that have been proposed predicated on a valuation that's strikingly at odds with the market, we also have a succession of plans that each of them includes a management incentive plan that we believe enriches management to a pretty significant degree. Mr. Kieselstein said do we not understand that there are always management incentive plans? Of course we do. The
question is, is this plan above market, and should it be one cause for concern of the Court as it looks at this plan, and as it considers not just if this plan is allowed to go forward to confirmation will it be confirmed, or will it run into problems of the sort that Judge Carey emphasized in his Spansion decision, where he held that excessive management compensation can be a basis for finding that a plan has not been proposed in good faith? would submit. Not only is that a consideration for the Court, we But in addition Your Honor, of course, is
weighing the various exclusivity factors, including whether the debtor has earned a continuation of exclusivity. Or whether
66 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
strokes. the debtor has been taking advantage of exclusivity by proposing plans that might benefit management to the detriment of other stakeholders. So let me turn to the management incentive plan and make a few comments about how we believe it's overmarket and it unduly enriches management. Your Honor will recall that we addressed this in our prior papers, but they were filed before the debtors latest plan was filed. In our prior papers we pointed out that the
broad outlines of the MEIP had been described but none of the details had been filled in. And the broad outlines were simply
that up to ten percent of the stock of the reorganized debtor would be set aside for the MEIP. The term sheet, Exhibit G, that was recently filed in connection with the ECA and the rights offering subplan, the term sheet now provides more detail. And so our point that
there's no detail is now out of date, and I'd like to address the details that have just been filed. First off, for starters, to start with the broad A very important detail has been filled in and that
is upon emergence there will be an initial grant of three percent of the reorganized debtors' stock to management. Now,
that's an outright grant of restricted stock, it's not stock options. And that's stock that under the debtors' valuations,
the ones that this plan rests on, would be worth between forty-
67 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
five million dollars and seventy million dollars. And as Mr.
Bienenstock said, if the trading values are more indicative of the value of the reorganized debtors' equity, you're talking many times multiple of the forty-five million to seventy million dollar figure I just mentioned. Now, Your Honor, if you merely consider the ten percent of stock being set aside, or three percent in an initial grant, if you merely look at the percentage that may not seem out of line with the market, may not seem out of the ordinary. But we would submit if you look at -- there are two And when you look
additional things that one needs to look at.
at these two additional considerations these are what gives real cause for concern. The first, Your Honor, is -- oh, and
Im sorry, Your Honor, the other preliminary point I should make of the three percent that's being initially granted to management more than -- so I think more than one-fifth of that, twenty-two percent of that, is being given to the debtors' CEO, Mr. Stebbins. And the -- and that will be worth, using the
debtors' valuations roughly ten to fifteen million dollars to Mr. Stebbins, right on the get-go, right on emergence. And,
again, if the trading values are more indicative, it could be worth many times the ten to fifteen million dollars. Now, the two additional points that give rise to greater concern, Your Honor, are these. First, if you compare
the value of what the CEO will be getting on the emergence
68 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
stage to his incentive comp prior to the bankruptcy it's much greater, it's a multiple two or three times the value of what he was getting. And for that, Your Honor, it's set forth in
the 2009 proxy statement, which lays out Mr. Stebbins long-term incentive opportunity, which is defined as 475 percent of his base salary, which was 1.2 million dollars. 5.7 million dollars. So it's roughly
Again, which is a small fraction of the
ten to fifteen million dollars, that under the debtors' valuation, he'll be getting right upon emergence. So it's a very big enhancement of his prepetition -his prepetition compensation. By the way, one point I would make related to that, to put that in context, Your Honor, is the debtor -- one of the debtors' big points is that its plan will rate a D leverage, the debtor, but less that on the balance sheet post-emergence than before the bankruptcy. And if you think for a moment, if
you take a percentage of stock, a stock award to management and you think about two companies, one of which is highly leveraged as this debtor was before, and another which has very low leverage, the same percentage of stock, say one percent of stock of an unleveraged company is worth a good deal more. If
the two companies have the same enterprise value, the stock in the unleveraged company is worth a good deal more than the stock in the highly leveraged companies. So if the company was
two billion dollar enterprise value, a billion dollars of debt,
69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
the stock is wroth a billion. stock is worth double that. And this may be one explanation for why the value of the stock that's being give -THE COURT: what you just said. MR. BENTLEY: THE COURT: fundamentally flawed. MR. BENTLEY: THE COURT: That's fundamentally? Your example, isn't true, it's Sorry? As a matter of valuation that's By the way, that's fundamentally flawed Whereas, if there's no debt the
fundamentally flawed as a matter of valuation, because you have to apply different discount rates based on the cost of capital to get to where you actually are on valuation. I mean, it's
balance sheet right, but it's wrong because it's assuming that what you just did doesn't change the underlying value of the corporation. MR. BENTLEY: I may not have been clear in the I was saying if you
example I was trying to give, Your Honor.
have one company that has an enterprise value of two billion and doesn't have any debt, and then you have another company with the same enterprise value, but it has a billion dollars worth of debt, Im not saying if you take the one company and then you add to it -THE COURT: All right.
70 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
MR. BENTLEY: enterprise value. THE COURT: MR. BENTLEY: Okay. I got you. -- because that would increase its
But the basic point, Your Honor, is
simply that the value that's being given in the initial grant right at emergence is a very big increase. And it could be a
very, very big number just in absolute terms. Final point, Your Honor, is the cause for concern increases if one looks beyond the percentages and the dollar values, and looks to some of the terms that are set forth in the term sheet concerning the restrictions on the stock and also the vesting of the stock. Your Honor. One is even though this is called restricted stock, the term sheet provides that one-sixth of it vests immediately upon emergence. So one-sixth of it in truth is not restricted And I'd make two points there,
stock, it's an outright grant, which is equivalent to a -using the debtors' values, two million dollar exit bonus to the CEO. And a much greater number, again, if you use the trading
values rather than the debtor values. This is -- this, we submit, is not in line with the best practices on management incentive, and neither is the second point that Id like to mention. And that is if
management -- if any of the managers receiving incentive comp are terminated -- if they're fired for poor performance, so
71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
longs as they're not -- there's not legal cause for their termination, the entire balance of their restricted stock vests immediately. The consequence of that is that if management
does a poor job -- even if management does a poor job and is terminated for that reason, they still get the full value of the stock award. And in that sense it gives them -- it that
sense it rewards them merely for -- merely for doing nothing other than -- merely for not tanking the company. It's not an
award whose value is tied to increases of the value of the company. And we would submit, Your Honor, that that feature of the plan is at odds with the market, particularly in today's environment, where the focus is more and more on structuring property incentive. Those are the points I wanted to make, Your Honor. And we would submit that that -- the management incentive plan in conjunction with -- together with what the market is telling you about valuation, both of those are strong reasons to permit other plans to be filed, and to end the debtors' exclusive rights. THE COURT: MR. BENTLEY: MS. DAVIS: All right, thank you. Thank you, Your Honor. Good morning, Your Honor. Charlene Davis
of Bayard, appearing on behalf of equity holders; Lenado Capital Advisors, Cypress Management Master LLP, Goshawk
72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Capital Corporation. Your Honor, I'm appearing in support of the joinder, and would like to do two things. One is to introduce my co-
counsel with Cypress and Goshawk, Robert Richards of the law firm of Sonnenschein Nath & Rosenthal, who will make some argument in support of the joinder, and also to advise the Court that Lenado Capital joins in the argument that Mr. Richards will be presenting on behalf of Cypress and Goshawk. THE COURT: Okay, thank you. Good morning, Your Honor. Bob
MR. RICHARDS: Richards for the record.
I agree with the prior comments, I just essentially want to make five different or supplementary points. One is remember where you were back in December, the debtors proposed a plan right before our great quarter is supposed to come out, where they're going to give nothing to the unsecured creditors, the unsecured creditors official committee is prepared to declare war on it, and to fight it to the hilt. Five months later, you know, you've got what appears to be close to a negotiated deal. If you continue exclusivity
and approve the plan support agreement is the debtor likely to negotiate with the shareholders? No. If you terminate
exclusivity, are they more likely to negotiate with the shareholders? I would submit yes. They've lost the leverage.
73 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
They can still proceed with their plan, but now someone else can propose a plan and Markit test it and they have to negotiate with us. THE COURT: Well, exclusivity isn't designed to force
the debtor to continue to work its way down the valuation chain and bring everybody under the tent. At some point they're
allowed in the exercise of their business judgment to say look, you know, these people are out of the money, they're going to be impaired, I've continued to make progress dealing with securities, and in my business judgment, are actually in the money and they're the fulcrum securities in the case. And
to -- and I've made progress doing that and want to continue to follow through on that, but I shouldn't have exclusivity extended because I haven't negotiated yet and won't unless a gun is put to my head with parties that in the exercise of my business judgment, I think are out of the money. MR. RICHARDS: Well, that ties to my second point.
Which is 203 North LaSalle and the principle of it is exactly on point. THE COURT: No, 203 North LaSalle says, and I think
the point -- the point that's going on in 203 North LaSalle is there was none of this. worth of negotiation. There was none of this five months The debtor came in, equity support the
insiders, did a plan that said hey, we're going to keep everything basically on the basis of our old equity and we're
74 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
road. going to go to a plan. They didn't negotiate with the bank,
there wasn't a back and forth, there wasn't an evolution of a process that, in effect, served as an auction, loosely, in this case, to get them to a point where hopefully they hope they're in a position where they have the support of the creditors who are actually -- who actually matter because they're in the money. case. LaSalle doesn't say got to have an auction in every LaSalle doesnt say you got to terminate exclusivity in The debtor has the right under the Code to take a
every case.
first shot at this and to actually make -- and they've made progress, it may not be what you like -MR. RICHARDS: THE COURT: Right.
-- but they made progress going down the
LaSalle doesn't say they have to do anymore than that. MR. RICHARDS: No. But the thing is the rights
offering is giving the bondholders the exclusive right to buy the stock, and the market's telling you it's way, way under market. If they want money to take out the seniors, let us,
the shareholders, participate in -- what they're doing is they're giving the bondholders that exclusive windfall. THE COURT: These are confirmation issues, they're These are -- you guys
not even disclosure statement issues.
want me to decide today that I should terminate exclusivity because the plan, which I haven't even read, that's on the table and is continuing to evolve, I take it, is non-
75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
confirmable on its face, based on evidence, by the way, that I don't have in the record as to what the trading values are or aren't, or what the underlying reason for the trade values being there are not -- you would have a hard time getting that objection sustained at an disclosure statement hearing. You
want me to go one step further removed from that and say it's so bad that I shouldn't even continue to allow them to pursue it on an exclusive basis, when they've brought, arguably, all their bondholders under the tent. being under the tent. tent. The committee very close to
Possibly Mr. Willett's clients under the And I get that,
And they've left you out in the cold.
and I understand why you're upset, and I understand you're going to have a fight on valuation, all of that makes sense. But that's not a reason to terminate exclusivity. MR. RICHARDS: THE COURT: Let me go --
And there's nothing keeping your clients
from -- I guess I'm worked up now but I've been listening for a long time. There's nothing to keep your clients from continuing to work and to come to the table with something concrete. I
don't know what your plan is, I don't know who your investors are, I don't know what rights offering you're willing to put in place, none of that. it. And I agree that there is no greater indication of I have no idea. So keeping working on
76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
value than what someone is willing to pay for something. Everything that we deal with in valuation testimony and expert reports is about one thing, price discovery. Price discovery
is best found when someone is willing to actually put up the cash, come to court and do a deal. Do it.
This is -- Mr. Lauria must be -- Mr. Shore just must be -- their heads must be spinning. This is the case I just Exact same
had almost to a T, which is the Six Flags case. issues.
Denied confirmation of the first plan, by the way,
sent them back to the drawing board in connection with that. The objectors continued to try to bring money to the table. Ultimately they brought money to the table, and ultimately a deal was reached. But these issues really -- I agree, I mean, And to say that the debtors have
value is what it's all about.
made a deal that's so crazy that I should deny exclusivity to me seems extreme. Now, there were plenty of allegations that the debtor was not exercising its fiduciary duties in those cases, in that case, and I dealt with them as they arose. And I haven't read
the plan support agreement, and I haven't approved the plan support agreement, and I haven't approved the disclosure statement yet. But I havent heard one thing today from anyone
on your side that would indicate to me why the debtor should not be given a shot, which is clearly contemplated by the Code, to continue to try to work this deal, on an exclusive basis.
77 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
And you can object, and if you're right ninety-nine percent sure I'm not going to give the debtors a second, third, fourth bite at the apple, we're going to have open season. And, look, that will lead to chaos. I thank Mr.
Bienenstock for his compliment on my ability to run cases, but there's only so much I can do. And I think lifting exclusivity
in this case will not accomplish anything other than putting chaos on the table. MR. RICHARDS: Your Honor, just a few other points.
One is -- I mean, in Freemont they just had five competing plans; a creditors' plan, three different shareholder plans, they had a common package, I mean, it's doable. THE COURT: Yes. And they just did it in Freemont out
MR. RICHARDS: in California.
So it is doable.
Another thing is this is all on the presumption that you're going to approve the plan support agreement, and that you're going to approve the truly outrageous fees in there. If
you come back and say I'm not going to agree to these kinds of fees, they may have no deal whatsoever. And so I think in
considering, both the motion and the length of the extension, that you should -- if you're going to approve an extension -approve a shorter extension and see if the plan support agreement is real and see if these things come together rather than extend for a long time on the presumption that comes
78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
together -THE COURT: I hear what you're saying. You're
objection is premised on the argument I won't approve it. MR. RICHARDS: THE COURT: Right.
And their motion is premised on the
argument, at least, that it will probably continue to move forward. I dont know. I'll decide that one when I decide it.
But if, you know, we go to a disclosure statement hearing or a plan support agreement and I make rulings that indicate the plan that's currently on the table is DOA you certainly will have the ability at that point and it may be appropriate at that point to have exclusivity lifted. I may do it sua sponte.
I'm not -- I would not be granting any exclusivity extension with prejudice. Facts will have to develop.
And I think it's premature today to say look, open it up now, even though seven days from now you're going to have a hearing that deals with the merits or at least some of the merits of the plan, that's on the table. you're going to find the other way. And, again, look, I think there is a presumption that the debtors should continue to have exclusivity. made that pretty clear. Congress has And just assume
And they've made it clear that it So, you
doesn't last forever by putting a timing limit on it.
know, they've worked, they've come forward with a plan, you don't like it, I get that. Mr. Willett may or may not like it,
79 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
it's unclear to me right now. toggle and some other aspects. MR. WILLETT: got work to do. THE COURT: MR. WILLETT: THE COURT: You dont like it. We don't like it. Okay, thank you. And, Your Honor -If I left it unclear, Your Honor, I've I think it really depends on the
MR. RICHARDS: THE COURT:
Although, frankly, if you're getting paid But
in full debentures I don't care if you don't like it. that's for another day. MR. WILLETT:
Your Honor, I would just move to
terminate the oral argument on exclusivity. THE COURT: But I don't -MR. RICHARDS: One final point for today's hearing is You got this, you've got Well, I think I made my position clear.
you got three contested matters up.
an examiner to look at plan issues, and you have our motion to appoint an equity committee primarily to work on plan issues. And as part of our motion to appoint an equity committee we're going to present Mr. Hal Kennedy of Jefferies on the very market debt data trading that we've been referring to. I would
respectfully suggest to Your Honor that rather than rule right now on exclusivity you hear all three and then you rule after you have the argument in the record on all three.
80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
If you decide you're going to appoint a plan examiner, or you decide that you're going to allow an equity committee to form I think that's going to impact the length of the extension. THE COURT: Yeah, I will. I think it's more likely
I'm going to extend exclusivity.
Because it's going to take
longer to bring another -- bring another party under the tent. And we'll certainly lengthen negotiations. And it doesn't mean
that all chance of the debtor being able to broker a plan would be DOA. As a matter of fact, to a certain extent, they have
brokered -- at least partially brokered a plan in this case. So I -- the valuation issue I get. And the fact that
the plan that's on the table you argue is unconfirmable, because there's no way that the value supports putting your clients out of the money. I can't make that decision in the Because the plan may
context of this exclusivity motion. continue to be fluid.
Clearly, in order to get Mr. Willett's
support it will have to continue to be fluid. So I hear you, but I don't hear you I guess. you but I don't agree with you. I hear
I'm going to overrule the And Im not going
objections, I'm going to extend exclusivity.
to at this time -- I'm going to deny the motion to terminate without prejudice. MR. RICHARDS: THE COURT: Thank you, Your Honor.
You're welcome.
81 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
You've got a form of order? MR. KIESELSTEIN: (Pause) THE COURT: Which motion do you want to do next? May I approach, Your Honor? Now, I just -- from a timing Yes, Your Honor.
Thank you.
perspective, I have a hearing at 1 o'clock, which is a joint hearing with the Canadian Superior Court on video conference that I obviously can't move. And we need to start setup of We'll have to
that at 12:30, which is in forty-five minutes.
reconvene after that break, which would probably be -- just to give us a little extra time, probably, you know, no sooner than 2, maybe 2:30. will take. I just don't know how long the Canadian hearing
It generally takes longer, obviously; two courts,
two judges, two presentations. So I don't want to start, for instance, I don't want to put a witness on the stand, and you know, be halfway through direct and take a big break, so I don't know how the parties want to proceed. Mr. Bienenstock, the next two motions are yours, if I recall, or maybe I'm wrong. MR. BIENENSTOCK: THE COURT: One of them.
One of them. The examiner motion is my client's.
MR. BIENENSTOCK:
The creation of the equity committee is the Sonnenschein firm.
82 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE COURT: All right. So I'll tell you what, let's
take a very short recess and you guys can caucus about how you think you'd like to proceed. And when we reconvene in say five
minutes you can give me a proposal on how we should go forward. Thank you. (Recess from 11:44 a.m. until 11:59 a.m.) THE CLERK: THE COURT: All rise. Be seated. Good morning, again, Your Honor.
MR. KIESELSTEIN:
Mark Kieselstein on behalf of the debtors. Your Honor, I hate it when we can't agree on even the small things sometimes. groups want to do. So here's what I think the equity
They'd like to go forward with the equity Then the
committee motion first, have opening arguments.
witness after the break, then closing arguments, and then the examiner motion. Our hope -- our preference is to have the
examiner motion first, try and get that in before the break, no evidence associated with that one, Your Honor, just argument. Number one. And, number two, we frankly don't see the need for opening arguments on the equity committee to say what the evidence will show, and an hour and a half later say in closing the evidence has shown, and we want to be efficient with everyone's time. We recognize it's not our motion, Your
Honor, but that's where the debtors' perspective is.
83 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE COURT: All right. Who is going to want to be
heard on the examiner motion, by show of hands? Yeah, okay, that I know. MR. SILVERSTEIN: Your Honor, on the phone, it's Paul
Silverstein, I'd like to be heard very briefly on the examiner motion, for about two minutes. THE COURT: Okay. Thank you.
MR. SILVERSTEIN: THE COURT: say something? MR. BIENENSTOCK: THE COURT:
Mr. Bienenstock, you were getting up to
If unlike --
We're not going to get the examiner
motion done in a half an hour. MR. BIENENSTOCK: going to say. THE COURT: I agree. And the second thing is that since Well, that's the first thing I was
MR. BIENENSTOCK:
the shareholders applying for the committee are putting on evidence and it includes trading prices, which Your Honor alluded to before you'd want to have evidence, we think it would be beneficial to have that in the record first, which is why we agreed that that motion ought to go first. THE COURT: motion first. Yeah. No, we'll do the equity committee
So if you want -- if the movant wants to set the
table -- I'm sorry, Mr. Willett, you look like you want to say
84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
opening. something. MR. WILLETT: Im very grateful you're not going to
entertain two sets of arguments on this equity committee motion. We going to hear everything twice. Let's just get the
evidence in on the record. THE COURT: Yeah. I don't know why I would need
I think I've had two hours of opening. Seriously, I mean the issue is not going to be too
flip, but the issues are all intertwined. MR. RICHARDS: I think the examiner and the equity Maybe we start
committee, you know, it's very similar issues.
the witness and then, you know, have legal argument, and both after the witness is done. THE COURT: Yeah, let's hear the evidence. The
question is do you want to put your witness on, start now, and if there's a hard break at 12:30 and then reconvene after lunch? Or whether it makes more sense to -MR. RICHARDS: THE COURT: Whatever Your Honor's pre --
Well, I hate to waste time, but my
preference would be to have it -- you know, we go through it. Because I'll be distracted for the next hour and a half listening to another case. MR. RICHARDS: THE COURT: And given my --
Well, we can
-- my skill at forgetting, I -- you know,
one thing chases the other out of the brain, so I'll lose the
85 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
thread of the testimony. So let's do this. Let's put your witness, or any
other evidence on, finish up the evidence, any evidence that's going to be heard, and then I'll hear -- and there may be some overlap, there may not, but I'll hear arguments about an examiner. And to the extent the equity committee issues
coalesce we're just sort of play it as it goes. Is that all right? MR. RICHARDS: All right. So you want us to do
twenty minutes of the witness now, and then -THE COURT: No, no, no, just the opposite. After 2. Yeah, no, I don't want to
MR. RICHARDS: THE COURT: stop in the middle. MR. RICHARDS:
I was vague.
Okay.
So we'll just start at 2 or
whenever you're available. THE COURT: Yeah. Let's do 2:30.
MR. RICHARDS: THE COURT:
Okay.
And then I have the balance of the day.
If the hearing is still going on at 2:30, I would appreciate if you would not come in the courtroom, because it would be disruptive, and with the video link it can be difficult. MR. RICHARDS: THE COURT: Understood.
All right, we're in recess to 2:30.
(Recess from 12:04 p.m. until 4:34 p.m.)
86 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
spell it. THE WITNESS: MR. RUEGGER: Hal, H-A-L, Kennedy, K-E-N-N-E-D-Y. Your Honor, during the break we placed THE CLERK: THE COURT: (Pause) THE COURT: Well I apologize. Obviously running a All rise Please be seated.
little later then I had hoped. were going to have witnesses. MR. KIESELSTEIN: MR. RUEGGER:
I think where we left it, we Anybody want to put one on?
It's their motion. Arthur
Good afternoon, Your Honor.
Ruegger from the Sonnenschein firm.
With Your Honor's leave,
I'll be asking our witness questions on direct. THE COURT: MR. RUEGGER: THE COURT: Very good. We'd call Hal Kennedy to the stand. All right. Thank you. Mr. Kennedy,
please take the stand and remaining standing while we have you give your affirmation. (Witness duly affirmed) THE CLERK: Please state your name for the Court and
an exhibit binder on the bench, it's entitled "Movants' Exhibit Binder for Hearing". With Your Honor's leave, I'd like to
present a binder to the witness. THE COURT: That's fine. Yes, that's fine. And sir,
Mr. Kennedy, if you would just make sure you're close enough to
87 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the mic or it's close enough to you, that would be helpful. THE WITNESS: MR. RUEGGER: THE COURT: DIRECT EXAMINATION BY MR. RUEGGER: Q. Mr. Kennedy, would you state your full name for the Thank you. May I proceed, Your Honor? Yes.
record, please? A. Q. Hal Kennedy. And could you summarize your educational background,
please? A. I have a degree in engineering from Columbia University
and an MBA from Harvard University. Q. A. Q. A. Q. A. Q. Are you currently employed? Yes. By whom? Jefferies & Company. What is Jefferies' business? Jefferies is a full-service investment bank. Could you summarize your job history, please, after school
and before you got to Jefferies? A. After graduating from business school I worked for Drexel After Drexel I joined Donaldson Lufkin &
Burnham Lembert. Jenrette.
Donaldson Lufkin & Jenrette was acquired by Credit
Suisse so subsequent to that acquisition I worked for Credit
88 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Suisse. Q. far? A. Q. Approximately twenty-five. Okay. And did you specialize in any particular area or I joined Jefferies in January of 2009.
And approximately how many years did that career span so
areas during those years? A. Over that time I worked in restructuring and distress
finance. Q. Did your experience include encounters with Chapter 11
cases? A. Q. A. Q. Yes, it did. And did it include dealings with distressed debt? Yes. Did it also include dealing with trading of stock, Chapter
11 debtors? A. Q. Yes. Did it include valuations of the debtors' enterprise
value? A. Q. Yes, it did. Can you identify some of the cases where you involved in
valuing the debtors' enterprise value? A. Some of the cases I was involved in are Footstar, Genesis
Health Ventures, Anacomp, Innovative Clinical Solutions and Sky Cable. Q. Did you testify as an expert in any of those or any other
89 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
cases? A. Q. A. Q. A. In two or three I actually testified. On the issue of valuation? Yes. And have you any experience in the auto sector? I've worked on financings for a number of auto part I worked on a fairness opinion for Leer. THE COURT: THE WITNESS: THE COURT: For whom? Leer. Leer. Just slide that mic down a little. Thank you. Leer?
suppliers.
It's just sticking up -- there we go. Q.
Can you identify for the Court some of the other auto
sector cases you've worked on? A. I worked on an out-of-court financing for Auto Cam. I've
worked on DIP financing for Meridian Auto Systems and I've worked on post-exit financing for XI Technologies. Q. Forgive me for skipping this part but I'm not sure I asked
you what cases you testified before as a valuation expert; can you identify any of those, please? A. The two that come to mind are Genesis Health Ventures and
Anacomp. MR. RUEGGER: Your Honor, at this point I'm going to
ask some questions about the work that Mr. Kennedy and his team at Jefferies did and ask about his opinions on those matters. With Your Honor's leave and unless there's some objection, I'd
90 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
ask that he be deemed an expert for that purpose. THE COURT: MR. MCGAAN: debtors, Your Honor. Any objection? Good afternoon. Andrew McGaan for the
I don't have an objection at this time,
nor do I think he needs to be qualified in any general manner by the Court as an expert. And I think if we take it question
by question, I could rise if there was -- if he sought to elicit an opinion that went to something that we didn't think he was qualified in, but I'm not sure we have an issue right now. THE COURT: All right. Anyone else? All right. The
Court will generally rule that the witness, Mr. Kennedy, is an expert in valuation, investment banking, etcetera, and we'll take it question by question whether there's a specific issue in connection with the ability to offer an expert opinion on any specific issue. MR. RUEGGER: BY MR. RUEGGER: Q. Mr. Kennedy, I'd ask you to open the binder that's in Do you have that, sir? Thank you, Your Honor.
front of you and turn to Exhibit 1. A. Q. A. Yes.
Could you tell us what that document is? This is an exhibit we prepared to show the value of It also
Visteon exceeds its claims and therefore is solvent. includes market prices of the various companies' debt
91 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. instruments and common stock. are buying -MR. WILLETT: Your Honor, I object. There's no Those prices show that investors
foundation for this exhibit. be -Q.
It's not in yet so it shouldn't
That's enough, Mr. Kennedy.
We'll take it a little
slower.
Was a prior version of this document attached to the
movants' motion for formation of an equity committee? A. Q. Yes, it was. I'd like to -MR. RUEGGER: Withdrawn.
Can you tell the Judge a little bit about what you and
your team did to investigate Visteon or other work in connection with preparing Exhibit 1? A. We reviewed public information that was available on We reviewed their recently filed 10K, their various
Visteon.
disclosure statements, their earnings, press releases and other press releases put out by the company. Q. Thank you. Turning to the first page of your exhibit, Mr.
Kennedy, can you tell us, in summary terms, what this page is intended to represent? A. This page shows the principal amount of the company's
various debt instruments, recent price of those debt instruments, the market value of those debt instruments and the amount that the market value exceed principal amount. Down
92 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
below is the -- a calculation of the accrued bond interest and then we show a number of how much the market value exceeds the claims. The accrued bond interest does not include the term
loan interest, which I believe as of the date of this analysis would have been approximately 110 million. So you can see the
110 million at the bottom of the page, factoring that in would say that the company's debt instruments are trading virtually on top of what their accrued claims are. Q. All right. Well, let's break it down a little bit. There
are five different facilities listed on the left-hand column, correct? A. Q. That's correct. Then the amounts outstanding, next column to the right,
you obtained those figures from the debtors' second amended disclosure statement, is that right? A. Q. A. Q. The principal amounts? Yes, sir. Yes. And then the next column over is "Price". Where did you
obtain the pricing data for those instruments? A. For the term loan we accessed the price data from Markits Both
and for the bond data we accessed prices from Capital IQ.
are widely used data sources for securities price -- for loan and bond pricing. Q. We'll come back to those sources in a minute. The fourth
93 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
column, starting from the left Mr. Kennedy, the "Markit Value", is that -- how were those figures derived? A. That was derived by multiplying the principal amount by
the market price. Q. And the "Value in Excess of Par", the last column on the
right, that's strictly a subtraction? A. Yes. That's a subtraction of the market value from --
subtracting the principal amount from the market value. Q. Turning to the second page of your exhibit, sir, can you
tell the Court what's intended to be represented on that page? A. The top chart is a graph of Visteon's stock price for the The bottom chart is a graph of the equity --
last year.
Visteon's equity market capitalization for the last year. Q. And where was the data obtained that's reflected on these
two charts? A. Q. This data was sourced from Capital IQ. Are you aware of any events in this case which correspond
to the changes that are reflected in these two charts? A. As you can see, there was a material increase in the stock That actually corresponds There was also a fairly
price, beginning in late February.
with the company filing its 2009 10K.
material drop in the stock price in early April and that actually corresponds to the trustee's denial of an equity committee. Q. Turning to page 3 of your exhibit, sir, can you tell us
94 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
what was intended to be represented on that page? A. This page shows the trading prices of the company's term
loan and it's three series of bonds for the last year. Q. A. So the term loan is which line, sir? The top line, the line that's the highest line up to the The middle line, for the most of
very end, is the term loan.
the graph, is the twelve and a quarter senior notes and, although you can't see it, the seven percent notes and the eight and a quarters are trading virtually identically since they have the same status in the case. So that's actually two
lines but they trade virtually on top of each other. Q. A. Q. par? A. Q. Approximately 107 percent. And the twelve and a quarter senior unsecured notes, So the term loan, is that the dark blue line, sir? Yes. And as of May 6th, that was trading at what percent of
that's the maroon line? A. Q. A. Q. Yes. And as of May 6th, that was trading at what percent? One-fourteen and a half. And then the other two notes, the seven and the eight and
a quarter, those are essentially the same line trading at 111 percent, is that accurate? A. That's correct.
95 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. Do you recall any events in this case that correspond to
any of the sharp price changes reflected in this chart? A. Similar to the last graph you can see a material
increase -- I'll focus on the sevens and the eight and a quarter since that is the lowest on the totem pole. can see a material increase. But you
In fact, the price doubled in
late April -- excuse me -- late February subsequent to the company issuing its 10K. Q. I'd like to focus your testimony, for a minute, on the We mentioned Markit and Capital
source of this pricing data. IQ.
You may recall in your deposition a couple of days ago you
were asked some questions about the source of that pricing and you didn't know the specifics of that pricing data, correct? A. Q. That's correct. Have you had a chance to investigate the details of the
pricing data? A. Q. A. Yes, I have. Can you tell the Court what you did and what you learned? I reviewed information published on both those firm's I've also spoken to
websites as to the source of the data.
internal people at Jefferies regarding reporting and I've also spoken to data specialists at those two firms regarding their information sources. Q. And so what did you learn about the data sources that are
used by the Markit service?
96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
MR. WILLETT: Objection, Your Honor. Join. Hearsay.
UNIDENTIFIED SPEAKER: MR. RUEGGER:
Your Honor, with respect, we believe
this would come in -- he's learned it from the websites of these two services. These are widely used services. The
Markit data that these services present is an exception to the hearsay under 803. I think it's 17 for Markit data. I think
Mr. Kennedy's testified that it's widely used in these industries. And in those circumstances, the Courts have not
required us to bring in an individual from Markit or Capital IQ to authenticate the data. MR. WILLETT: If they had the actual Capital X Markit The only way they get here
data that might work, under 803.
is, under 703, an expert explaining the business -- the basis for -- the proposition is that the witness became an expert between Monday and today, which I don't think is possible. I suggest for this witness, Your Honor -(Pause) THE COURT: Well, sustained, as to the truth of the So
quotations, to the extent they are being offered as evidence. But obviously, he can rely on it in his opinion and it goes to -- it will go to the weight of the opinion, based on what the cross-examination reveals. MR. RUEGGER: THE COURT: Very well, Your Honor. Just to -- Mr. Willett's correct, the
97 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
rule reads that the reports themselves need to be offered. BY MR. RUEGGER: Q. Mr. Kennedy, based on your knowledge of the pricing data
from those sources, do you have an opinion as to what the Markit views, if any, are in terms of the debt of Visteon? A. I believe the data to be accurate, an accurate reflection I
of where investors are buying these debt instruments.
believe the value that's represented where this debt is trading represents these investors expect to receive a full recovery of par plus accrued interest, which I think demonstrates that Visteon's solvent. Q. Let's turn to the next page, page 4 of your exhibit, Mr. What's reflected on that page?
Kennedy. A.
This is a page -- this is a table showing forecasts for
Visteon's two largest customers, Ford and Hyundai for 2010 and 2011. Q. A. Q. What was the source for the data? JD Powers. Turn to the next page, page 5, Mr. Kennedy. What's
represented on that page? A. This page details Visteon's claims, which are It also shows the value
approximately three billion dollars.
of two of Visteon's discrete assets, excess cash and its seventy percent stake in Halla. Those two assets are This
separately valued and deducted from the aggregate claims.
98 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
leaves a net claims amount that the value of what I call core Visteon needs to equal for the company to be solvent. So what we've done here is we've added up all the claims, approximately three billion dollars. Visteon owned two core
assets, excess cash which is -- cash is cash, easy to value, and a publicly -- seventy percent of a publicly traded company and this shows what the recent market value of that seventy percent interest would be and subtracted that from the aggregate claims to give what you'll see later on is referred to as the claims hurdle. Q. I'd like to focus on a couple of the specific line items, Directing your attention to the line for general
Mr. Kennedy.
unsecured claims, which has a figure of, I believe, 108 million. A. Where did you get that figure?
That comes from the company's most recent disclosure
statement. Q. A. Q. A. And is that a specific figure or part of a range? That's the low end of the range. And why did you use the low end of the range? We believe the low end of the range is appropriate because We've also
we're trying to demonstrate Visteon's solvency.
observed, over the course of the three disclosure statements that have been filed, the amount of the unsecured claims has come down from approximately 350 million to a midpoint in the first amended disclosure statement of 170 million. In the most
99 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
recent disclosure statement the high end of the claims was less than the 170 million. So again, we feel the low end of the
range is appropriate when we're trying to demonstrate whether Visteon is in, I would call, the zone of solvency. Q. So the total estimated claims then is, as you said, three
billion but specifically in this chart it's 3 billion-35.2 million, is that correct? A. Q. That's correct. And you mentioned excess cash; tell us again please, why
are you subtracting excess cash from the estimated claims figure? A. We believe this amount of cash is not required to run the We do a calculation of 1.5 percent of the company's
business.
sales, which we think is an appropriate amount for the company to retain in its business to operate. We also note that the
company's plan provides for a 300 million dollar revolving credit facility. Q. A. The next item down beneath -- sorry. I just want to make the point that, again, we're only There's over 500 million of
focusing on the debtor cash.
nondebtor cash that's not taken into account in this analysis. Q. Turning to the next item, beneath "Excess Cash", it says Why
that you subtracted seventy percent, the Halla interest. are you taking that figure away from the claims amount? A.
This is another discrete asset of Visteon that has a -- is
100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. easily valued in the marketplace. company in Korea. It's a publicly traded
We can poll the Korean stock price, convert
it to dollars and -- so there is a discrete value for Visteon's seventy percent stake in this company. Q. And how was that seventy percent stake calculated in this
instance? A. We took the stock price from Cap IQ, which I believe is
recorded in won and converted to U.S. dollars. Q. And so at the last line, adjusted estimated claims, in
your opinion what does that figure represent? A. This is the amount of, again, what I call core Visteon.
So this is Visteon without excess cash, without its interest in Halla, what does the core operating company need to be worth to have a value sufficient to satisfy the claims? Q. Very well. THE COURT: in valuing Halla? THE WITNESS: THE COURT: We did not. All right. Sorry. Did you include a control premium
Turning to two pages later or after the footnotes for that
page, Mr. Kennedy, I think it's entitled "Preliminary Analysis of Required EBITDA". A. Q. Yes. Can you please explain what you intended to set forth on Do you have that page?
that page?
101 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. We start with the aggregate claims, the approximately We subtract out the value of the two --
three billion dollars.
of Visteon's two discrete assets, its excess cash and its seventy percent stake in Halla, which again brings us down to what I call the claims hurdle. We then divide the claims hurdle by a range of Markit multiples. You can see five, five and a half and six. And
this produces a threshold EBITDA.
That's the amount of EBITDA
that would be required to support a valuation of Visteon equal to the claims. And as you can see the numbers, it ranges from
307 million to 256 million. We then show Visteon's adjusted EBITDA but adjusted to deduct Halla's contribution from Visteon's EBITDA. So you can
see -- and then show the amount of excess or the cushion between the required EBITDA to support the valuation and the adjusted EBITDA. And you can see the cushion is substantial.
It represents over thirty percent of Visteon's reported EBITDA. Q. Mr. Kennedy, I want to focus on some of what you just Working back to the line that says
covered, fairly quickly. "Selected Multiple" -A. Q. Yes.
And you have a range there of five times to six times.
Can you tell the Court, with a little more detail, how you derived that range of multiples? A. We had a set of what we consider comparable companies and
102 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
we looked at their -- what I'll call LTM EBITDA multiple. Generally, in the early analysis, it may or may not have reflected a year-end number. By April, they generally
reflected a year-end number; by May we were starting to get first quarter numbers in that multiple. and medians of the comp set. But those were mean
And you can see below that we And then we also
used -- most recently we used ten companies.
looked at the forecasted EBITDA multiple for 2010. And what you'll see in the comparables is the multiples come down fairly materially. Obviously, the last twelve month The
EBITDA multiples reflect relatively poor earnings in 2009.
2010 multiples reflect much better prospects for the industry. But the numbers, the five, five and a half and six are probably closer to the forecasted calendar year 2010 multiples, which I would consider as somewhat of a floor given that the -- given that the EBITDA we're looking at is really an LTM EBITDA. again, the first two analyses we provided used a year-end number and the most recently it incorporates the first quarter, which was released at the end of April. Q. Dropping to the next line, which is in bold, "Required And
EBITDA Hurdle", is that derived by essentially dividing the estimated remaining claims hurdle by the respective multiples? A. Q. Yes. And if I understand your testimony correctly, that is the
annual EBITDA figure under either the low, mid or high case
103 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
that you believe the core Visteon must generate to reach a value that covers the remaining claims, is that correct? A. Q. Yes. And in this instance, where you used the Visteon LTM --
and LTM is what, last twelve months? A. Q. Last twelve months. You use a Visteon LTM adjusted EBITDA of 479. Where is
that calculated, sir? A. Q. We'll show that on the next page. Very well. And using that figure, the amount in excess of That's value in excess of the
the hurdle is the last line? claims as you calculate them? A. Yeah.
That shows how much essentially Visteon's core
EBITDA could decline and we would still feel there's value to satisfy the claims. Q. Turning to the next page, page 8, entitled "Historical
Quarterly EBITDA", Mr. Kennedy do you have that page in front of you? A. Q. Yes. Can you tell the judge what you're trying to represent on
that page? A. The first line shows Visteon's quarterly adjusted EBITDA The
as disclosed in its quarterly earnings press releases.
second line shows Halla's -- well, for the first three -- for the quarters reflecting 2009, these are Halla's EBITDA as
104 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
reported by Bloomberg. For the first quarter of 2010 we needed
to use an earnings estimate because as far as we could tell Halla has not released its first quarter 2010 earnings. All these numbers for Halla were initially -- are reported in won so we converted it each quarter according to the exchange rate for that quarter. And you can see the
cumulative -- well, the last twelve month EBITDA for Visteon is 573 million. We've subtracted approximately 114 million, which
is the Halla reported EBITDA, to give us the 479 million of EBITDA that for Visteon, absent Halla's contribution. Q. Very well. So the Visteon consolidated adjusted EBITDA,
the first line there, that's straight from Visteon's press releases? A. Q. Yes. And the first three quarters you use, which are quarters
two, three and four, for Halla, those came from Bloomberg's figures for won? A. Q. They were in Juan. And the fourth quarter -- or the first quarter of 2010,
that's the Bloomberg consensus estimates for EBITDA for that quarter? A. Q. A. Q. Yes. And that derives from -- the four quarters, 479.1? That's right. Looking at the next set of lines and figures, can you tell
105 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the judge what is meant to be reflected there? A. In the next table, we take Visteon's EBITDA after
deducting Halla's contribution, multiply it by, again, a range of Markit multiples -- 5, 5.5 and 6 -- to derive an estimated enterprise value for what -- what we -- what I get -- I call core Visteon -- so it's Visteon without excess cash, without the Halla interest -- and compare that number to the amount of claims that need to be satisfied that are in excess of the excess cash in the Halla interest -- the value of the excess cash in the Halla interest. And then we show how much cushion
there is in the value in excess of the claims, which again, I think demonstrates Visteon's solvency. Q. Turning back, briefly, to the trading data that we looked
at earlier, have you and your team collected the pricing data for each of those days for stocks and for debt, in the course of your work in preparing this analysis? A. Q. Yes. And you obtained that data from those two sources, Markit
and Capital IQ? A. Q. That's right. And in the course of that collection, have you been able
to print out each day's closing price for those securities? A. Yes. MR. RUEGGER: Your Honor, to the extent it will
complete the record, we'd ask leave to be able to present as a
106 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
supplement, those schedules of the pricing for the stock and the debt before the motion is finally closed. them here. THE COURT: MR. RUEGGER: THE COURT: All right -But we can obtain them quickly. -- I'll give you leave to do that, We do not have
obviously subject to cross-examination. Q. Just a couple of follow-ups here. On the -- have you
looked at the amount of the volume of trading in the bonds and stocks for Visteon? A. Q. Yes. And is -- do you have an understanding as to what
percentage of the trading in the stock was represented by members of the ad hoc committee or the Aurelius group of funds? A. We calculated that it was approximately seven percent of
the trading volume between March and April. Q. And finally -- sorry to jump around on this one, Mr. But on the last page, the multiples that you used in
Kennedy.
deriving the implied enterprise value, how were those multiples selected? A. We looked at the mean and median EBITDA multiples for the
latest twelve months for the comparable group and the projected calendar year 2010 multiples. The multiples reflect a
composite of that set of multiples. Q. And in your view, are the multiples presented on that last
107 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
some -THE COURT: (Pause) MR. MCGAAN: Good afternoon. Andrew McGaan again, Yes, of course. page aggressive or conservative? A. Since they're much closer to the forecasted 2010 EBITDA
multiples, and we're using Visteon's latest twelve month EBITDA, which really -- which includes three quarters from 2009 and only one quarter for 2010, I think it is conservative. MR. RUEGGER: talk with my colleague? THE COURT: (Pause) MR. RUEGGER: Thank you, Your Honor. Subject to Yes. Your Honor, may I have some seconds to
getting the pricing we talked about earlier, I'm prepared to pass the witness. THE COURT: Okay. Before you start, any questions --
cross-examination questions by anyone in support of the motion? All right. Now, we'll turn it to the debtor. MR. MCGAAN: If I might have a moment just to pull
for the debtors, Your Honor. CROSS-EXAMINATION BY MR. MCGAAN: Q. Good afternoon, Mr. Kennedy. We met on Monday afternoon
for the first time, correct?
108 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. MR. MCGAAN: Could I approach and hand up both to
Your Honor and to the witness, a copy of a deposition transcript, in case there's any need to refer to it? THE COURT: MR. RUEGGER: THE COURT: Yes. Thanks. Thank you.
Mr. Kennedy you got involved in this engagement for the
first time just a month ago, correct? A. Q. In early April. Early April. I'd like to begin by asking you a few Is that
questions about some of the things you haven't done. all right? A. Q. (No audible response) You have never -THE COURT: You don't need to answer that.
I expect
it isn't all right, but you don't really have any choice. MR. MCGAAN: Yeah. I was going to say, if it isn't, So --
I suppose I might go ahead anyway. Q.
You've never before been retained to perform a solvency
analysis, isn't that correct? A. Q. That's correct. And you have no opinion about Visteon's enterprise value,
correct? A. Q. That's correct. You've done no analysis of Visteon's debt capacity, either
109 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
past, current or projected, correct? A. Q. That's correct. And you've done no analysis of Visteon's leverage ratio,
right? A. Q. I'm not sure there is a leverage ratio for Visteon. But Im correct in stating you've never done such an
analysis, correct? A. I'm not sure how you would analyze a leverage ratio that
doesn't exist. Q. Well, whether or not you think there is one or it exists,
it's not an analysis that you've done and come here prepared to testify about, correct? A. Q. That's correct. You've also conducted very limited due diligence in
preparation to testify, correct? A. Q. Yes. You have reviewed publicly filed financial statements,
right? A. Q. A. Q. Correct. You have reviewed company press releases, true? Yes. And the filed disclosure statements -- the disclosure
statements filed in this court, right? A. Q. That's right. You did not seek access to any of the financial or
110 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. operational information and data about Visteon that's contained in its data room, correct? A. Q. That's correct. I'd like to turn now to your illustrative analysis, which
is Exhibit 1 in the binder that you have and that counsel provided to the Court. A. Q. Yes. All right. Let's look at -- now you remember at the Are you there?
deposition we assigned page numbers. MR. MCGAAN: judge's binder? MR. KIESELSTEIN: MR. MCGAAN: THE COURT: I don't believe so. Can I ask, are they numbered in the
Okay, we'll work through -That's all right. You just went over
them, 1 through whatever? MR. MCGAAN: here, yeah. THE COURT: All right. All right. I'll make that mark. Okay. They're numbered 1 through 8 informally
Let's look at page 1 of the illustrative
analysis which purports to show -- and I'm reading from your piece here -- purports to show value in excess of debt claims, correct? A. Q. Yes. And to do that, as you've just described on direct, you
computed a market value and show it to be in excess of par in
111 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
this analysis, true? A. Q. Yes. You subtract out, as you describe, the accrued bond
interest that you calculate at 94.9 million, right? A. Q. Yes. And then, as you pointed out on direct, this analysis does
not subtract out the accrued interest for the term loan debt, correct? A. Q. That's correct. All right. Now, there was an analysis that Jefferies
performed, I think before you got involved, that was submitted to the U.S. trustee by letter seeking appointment of a committee, correct? A. Q. Yes. And then there was a version of this illustrative analysis
submitted in connection with the motion in this court on April 15th, correct? A. Q. That's correct. And then the version we're looking at now was updated and
submitted to us this past Sunday evening, true? A. Q. Yes. All right. And in none of those did your analysis pick up
the accrued interest for the term loan debt on page 1, right? A. Q. Correct. Now, if we turn to page 5, and we look at the line item
112 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
under the preliminary -- in the preliminary claims hurdle chart, there is an estimated claim for the term loan facility. Do you see that? A. Q. Yes, I do. And it's footnoted footnote 5, and it says, "The term loan
facility includes post-petition interest up through June 29, 2010." A. Q. Right?
That's right. And as page 1 reflects, the principal amount of the term
loan debt is 1.5 billion, right? A. Q. That's right. So this chart on page 5 reflects accrued interest of 129.3
million, at least according to this chart, through June 29th, correct? A. Q. Correct. All right. So if we turn back to page 1 and make a
further adjustment that hasn't been made to this chart yet, and account for the accrued term loan interest of 129.3 million, your chart shows a negative number of 18.4 million. think that's fair? A. This chart -- the accrued interest on this chart is And if you calculate the interest on the term Do you
through May 6th.
loan, I believe it's approximately 110 million. Q. If we take the accrued interest, however, that you've
reported on page 5 and carry it over to page 1, this will show
113 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
negative -- a negative number of about eighteen million, correct? A. This was intended to show where the securities are trading A security trading today would not say I'm going -- as It will
today.
of today, I have accrued interest through June 29th. say I have accrued interest through May 6th. Q.
You'll agree with me, won't you, Mr. Kennedy, that as you
say on the top of page 5, that the accrued interest on the term debt needs to be paid, correct? A. Q. That's correct. All right. And your chart reflects that there is, through
June 29th, 129.3 million of accrued interest, correct? A. Q. Yes. And it is likely, is it not, that the interest will
continue to accrue if the company emerges from Chapter 11 later than that time, correct? A. Q. A. Q. That's true. And it will need to be paid, correct? That's true. All right. And if we account for the accrued interest -Page 1 accounts for no accrued
well, let me ask you this.
interest for the term loan debt, correct? A. Q. On this page it doesn't. It does not. And if we accounted for accrued term loan
debt interest through June 29th of 2010, this figure on page 1
114 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
would be negative by simple arithmetic, correct? A. I think that's misleading as to what this page is intended
to show. Q. Well, Mr. Kennedy, whether or not it's misleading, your My question is whether my math is right.
counsel can argue.
If we account for the accrued term loan debt that you failed to put on this chart, this is negative by simple arithmetic, correct? A. If I were to subtract the number you give me, that has no It would be negative.
relevance to the market price. Q. A. Q. Okay.
You did account for bond interest here?
That's right. Correct? All right. So you should have accounted for
term loan interest, but did not? A. Q. Yes. All right. Now, you testified that you believe that if
you were able to show value in excess of debt claims, the company would be solvent? A. Q. That's right. And if we account for accrued term loan interest, that
we've now agreed has to be paid, and we account for accrued bond interest that you've testified has to be paid, this does not show that the company is solvent, correct? A. Q. I disagree. All right. Well, we can disagree about whether the math
115 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
works out the way it does. on page 5. A. Q. Yes. This shows claims in the amount of 3 billion 35.2 million Let's look now at the claims hurdle
And this shows -- are you there?
that need to be paid for Visteon to reorganize, correct? A. Q. Yes. And your illustrative analysis takes no position on how
all these claims will be paid, correct? A. Q. That's correct. You have no idea and take no position on whether Visteon
could or should sell the seventy-percent interest in Halla, right? A. No. The purpose of the analysis just is to show that
there's value in excess of the claims. Q. Regardless of the purpose, my question is, Mr. Kennedy,
that you take no position on whether Visteon could or should sell its seventy-percent Halla interest in order to pay claims, correct? A. Q. That's correct. You've done no analysis of the company's ability to sell
that stake in Halla, true? A. Q. That's true. You've done no analysis of whether and how much the
company -- whether the company should raise debt or how much debt it should raise to pay any of these claims, correct?
116 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. That's correct. You've done no analysis of whether Visteon's future debt
burden will affect its ability to generate earnings, true? A. Q. That's true. And you've done no analysis of its ability to access cash
going forward to service whatever debt it may take on, true? A. Q. That's true. You've done no analysis of how much cash Visteon should
use to pay any of these claims, correct? A. Q. That's true. In fact, you don't even know whether any of these claims
have to be paid in cash, do you? A. Q. That's true. All right. Let's turn to your EBITDA analysis, page 8.
And as you've just described, I believe, your analysis here is based at least in part on applying a multiple to the last four quarters of Visteon EBITDA, as you've adjusted them, correct? A. Q. true? A. Q. That's true. You did not speak with anybody in Visteon management, Yes. All right. You did not read Visteon's business plan,
correct? A. Q. That's correct. Your illustrative analysis takes no account whatsoever of
117 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Visteon's projected 2010 EBITDA, right? A. Q. That's correct. And if we turn -- if we just briefly turn back to a page
you made passing reference to on direct, and that is the page 4, global production estimates. A. Q. Yes. And by the way, this shows estimates from certain car
manufacturers from fiscal year 2010 to 2011, correct? A. Q. Yes. It doesn't show projected growth rates from 2009 to 2010, That's not here?
right? A. Q.
That's right. And you've done no analysis that connects projected growth
of Visteon's customers to any of its -- any aspect of its business plan or its own projected earnings, true? A. Q. Yes. When you did -- now we'll go back to page 8. When you did
this EBITDA analysis that's set forth in your illustrative analysis here, you did not know what Visteon was projecting for 2010 EBITDA, or what it was projecting for Halla's contribution to 2010 EBITDA? A. Q. No. It's your position that Visteon's 2010 projected EBITDA You don't know that either, correct?
doesn't matter to your analysis at all, correct? A. No, I dont think it matters. Well, why don't I just --
118 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
we did attempt to construct an EBITDA forecast from the company's projections. However, we were unable to tie even the
2009 reported EBITDA to some projected EBITDA that would tie to the projections. We did look at the forward EBITDA if we used And it seemed to indicate
some type of mixing and matching.
that Visteon's EBITDA was increasing in 2010/2011. Q. Well, I understand that. But we've agreed, haven't we,
that you made no effort to find out from the company's business plan or from its management, what it's actual projected EBITDA is or what its projected contribution from Halla to that EBITDA is. A. Q. You've not done that? That's right. And ultimately, you were willing to agree with me that
whatever its projected 2010 EBITDA is, simply doesn't matter to your analysis, correct? A. The only thing I would say is we do have a view that it's So I think that was taken into account in our
growing. analysis. Q. Okay.
You backed out from your adjusted EBITDA here on
page 8, an amount attributable to Visteon's ownership of the seventy-percent stake in Halla. In other words, you backed out
all of the -- what you derived as the Halla contribution to EBITDA, correct? A. Q. That's correct. You didn't do any -- other than consulting Bloomberg,
119 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
which is referred to in footnote 2 on page 8, that's where you get your information, correct? A. Q. That's correct. You didn't do any other analysis or inquiry into Halla's
actual EBITDA contribution to Visteon, did you? A. Q. you? A. Q. A. No. You didn't review Halla's 2009 annual report? As far as we could tell, we could not find an annual No. You don't know how Bloomberg calculated Halla's EBITDA, do
report in English. Q. You're not familiar, are you, with how Korean companies
report their earnings? A. Q. No. In this analysis, so it's clear on how this works, the
smaller the estimated contribution to EBITDA from Halla is -the smaller it is, the harder it is to hit the debt hurdle, correct -- the claims hurdle, I'm sorry? A. I would actually think it's the opposite. The larger the
Halla contribution is. Q. I'm sorry. Did I say that backwards? Thank you. I
accept that.
Now, you referred to adjusted EBITDA in the top Did you make any adjustments to take
line of your report here.
out nonrecurring events from 2009 that won't contribute to
120 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Honor. future EBITDA at Visteon? A. We made no adjustments independent of what the company
disclosed. Q. A. Q. Okay. No. And you'll agree with me, won't you, that if there were But you didn't do any adjustments yourself?
events that occurred during 2009 that contributed to the earnings in any of these three quarters that will not recur, they should be backed out for purposes of conducting an analysis like this, correct? A. I relied on the company's disclosure that they were
reporting adjusted EBITDA in an effort to inform investors with a measure that excluded one-time items. Q. Is that your way of saying yes, you agree with me that
they should be excluded if you're going to do an analysis like this and apply a multiple to it? A. Q. I think we used the appropriate numbers. But should one-time nonrecurring events in 2009 that are
contributing to earnings, to which you're applying a multiple, be removed for purposes of analysis like this, regardless of who you think did it? A. Q. Generally, yes. Okay. Thank you. MR. MCGAAN: Im going to pass the witness, Your
121 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. THE COURT: (Pause) CROSS-EXAMINATION BY MR. SIEGEL: Q. Good afternoon, Mr. Kennedy. For the record, Howard Okay. Thank you.
Siegel for Brown Rudnick on behalf of the official equity committee. MR. SIEGEL: THE COURT: MR. SIEGEL: Im sorry -Motion granted, let's go home. I think I'm ready to sit down. For the official That's
what happens when Mr. Stark leaves. creditors' committee. Q.
Mr. Kennedy, do you have with you on the witness stand a
copy of your deposition transcript? A. Yes. MR. SIEGEL: THE COURT: The Court has that as well, Your Honor? Yes.
Mr. Kennedy, am I correct that your opinions and
conclusions regarding term loan trading prices are based on information you obtained from a source you identified as Markit, M-A-R-K-I-T? A. Q. A. Q. That's correct. And that's the sole source for the term loan price data? Yes. And am I also correct that your opinion and conclusions
122 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
regarding senior note pricing and stock pricing are based on a source you identify as Capital IQ? A. Q. Yes. And that was your sole source for that price data. Is
that correct? A. It's the source we cite in the report. We also looked at
other sources to cross check it against. Q. Well, but in your report, you indicate that that is the
data you relied on, correct? A. Q. Yes. Let's turn first to the Markit data. At your deposition
on Monday in this case, two days ago, you did not know anything about the source of the term loan price data reported by Markit, did you? A. Q. No. And you didn't know whether that data represented bid
asks, spreads or actual trades, did you? A. Q. No. And you didn't know anything about the volume of trades
represented and reported by Markit, is that correct? A. Q. That's right. And is it also correct that you didn't know what
percentage of actual trades that occurred were reported on by Markit? A. That's right.
123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. And you had no knowledge of the total number of term loan
trades that were made during the reporting period reflected in your report? A. Q. That's right. And you had no knowledge in -- of the number of distinct
buyers and sellers reflected in the Markit data that is contained in your report, did you? A. Q. No. Directing your attention next to the Capital IQ data, and
specifically as it relates to senior note pricing, at the time of your deposition on Monday, you didn't know what the source of these senior note prices contained in the Capital IQ data were, did you? A. Q. No. And you didn't know if that represented bid asks, spreads
or actual trades, correct? A. Q. That's correct. And you knew nothing about the volume of senior note
trades represented and reported on by Capital IQ, right? A. Q. That's correct. And is it also correct that you had no knowledge of the
percentage of total trades that actually occurred of senior notes were represented by the Capital IQ data? A. Q. That's right. And you had no information or knowledge about the total
124 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
number of trades for the reporting period that were reflected in the Capital IQ data, correct? A. Q. That's correct. And you had no information about the number of distinct
buyers and sellers that were represented in the Capital IQ data, correct? A. Q. That's correct. And you also relied on Capital IQ data for your stock
price information as contained in your illustrative analysis, correct? A. Q. That's correct. And if I ask the same series of questions about your
knowledge as you reported it, as you testified on Monday, as to that data, would your answers be the same? A. Yes. Well, the question is, is it the same today or the
same as I -Q. A. Q. As of Monday; when you were asked those questions -Yeah. Right. Now, Mr. Kennedy, was Jefferies originally
-- on Monday.
retained in this matter by the movants here in late February or early March for the purpose of seeking an eq -- the appointment of an equity committee? A. Q. Yes. And just so I was clear, late February or early March of
this year, 2010, is that right?
125 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. That's right. And do I understand correctly that Jefferies has no formal
retention agreement with the movants but is undertaking this engagement in what you called an accommodation to the three parties who comprise the movants? A. Q. That's correct. Does Jefferies have any agreement or understanding with
the movants that it will be compensated for its work if an equity committee is not appointed here? A. Q. No. Does Jefferies have any agreement or understanding with
the movants that if an equity committee is appointed that there will be an effort made for Jefferies to represent that official equity committee? A. Q. A. Q. I don't believe there's anything formal in that regard. Well, is there anything informal? I don't know of any. Can you describe for me as completely as you can what the
terms of the accommodation are by which Jefferies is performing its work for the movants here? A. We agreed to prepare the exhibits that were provided --
were included in the letter to the trustee and in the motion, and we have updated those exhibits. with the movants beyond that. Q. Is there any agreement or understanding on any formal or There's no arrangement
126 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
informal basis that compensation will be paid to Jefferies under some circumstances? A. If we were to be retained by an equity committee, But we have no
presumably we would receive compensation.
agreement that we would be retained by an equity committee, if it were established. Q. And you understand, I take it, that one of the factors by
which an equity committee may or may not be appointed that the Court would consider is testimony as to value/solvency, correct? A. Q. Yes. Now, Mr. Kennedy, you're aware that the debtors filed an
amended plan, I believe, on May 7th that incorporates a rights offering, are you not? A. Q. Yes. And you're also aware that the amount of that rights
offering is 1.25 billion dollars? A. Q. Yes. And you also understand that if that rights offering plan
is effectuated, the -- Visteon will emerge with debt of approximately 400 million dollars in total as compared to its approximate 3 billion dollars of debt in place today, as reflected in your analysis, is that right? A. Well, I guess I would say currently there's about 2.5 But generally, yes.
million of funded debt.
127 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. Well, don't -- doesn't your illustrative analysis indicate
that there's claims against Visteon as of today in the three billion dollar range? A. Q. Yes. And post-emergence if the rights offering plan is
effectuated, it will have 400 million of debt, correct? A. Q. That's correct. And you understand that it's only holders of senior notes
who will obtain subscription rights and the right to participate in a rights offering under the plan currently proposed? A. Q. Yes. And you're aware as well that the rights offering plan
provides that the senior noteholders who subscribe to the rights will receive ninety-five percent of the stock of reorganized Visteon at a fixed price, as stated in the rights offering, correct? A. Q. Yes. And you know, don't you, Mr. Kennedy, that the rights
offering plan was under consideration for a number of months prior to May 7th when it was filed? A. Q. Yes. And wasn't it known publicly in the investor marketplace
that the rights offering plan was under consideration for a number of months?
128 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. I think there was disclosure of a potential toggle plan. Well, and there were reports, and hearings in this court,
and pleadings filed in this court, and financial sources such as Debtwire and others, that were reporting on a potential rights offering for a number of months, to your knowledge? A. Q. Yes. And are you aware, Mr. Kennedy, that as part of the
pleadings filed by the debtors on May 7th, the debtors represented there are twenty-seven senior note investors who have agreed to backstop the rights offering, who collectively hold in excess of two-thirds an amount of the total senior note debt? A. Q. I think I became aware of that during the deposition. Well, did you read the pleadings that were filed as part
of the recently filed plan? A. Q. I read the plan. Okay. But you have no reason to doubt that that
statement -- that representation was made by the debtors in pleadings filed with this Court, correct? A. Q. No, I have no reason to doubt it. And is it the case that an investor who acquired senior
notes, over these number of months when the rights offering plan has been under consideration, acquired not only the notes -- or the debt instrument but also, assuming the rights offering plan goes into effect, acquired the subscription
129 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
rights that would attach to those notes under the rights offering plan? A. Q. Yes. And you believe, Mr. Kennedy, that those subscription
rights have substantial value, don't you? A. Q. Substantial value. Thank you. MR. SIEGEL: THE COURT: Mr. Willett? MR. WILLETT: Good evening, Your Honor, Mr. Kennedy. Nothing further. All right, thank you.
Sabin Willett for the term loan lenders. CROSS-EXAMINATION BY MR. WILLETT: Q. I wrote a note, and I'm not sure if I miswrote it, so I Did you really say you didn't read the Halla
want to ask you.
2009 report because "we couldn't find a version in English"? A. Q. A. Q. A. Q. you? Yes. Were you aware this debtor had a Korean joint venture? Yes. It's a billion dollars of the value, isn't it? Yes. And you couldn't find someone to read a little Korean for Couldn't get it translated? Wasn't important enough to
find out what that said about a billion dollars of value?
130 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. MR. RUEGGER: Your Honor --
I believe Bloomberg is a very accurate and credible data We used their reported EBITDA for Halla.
source. Q.
So expert witnesses shouldn't bother with financial
reports and annual reports; they should just go to Bloomberg, is that it? A. I think it's a very accurate data source. I think it
accurately presents the information we require. Q. Isn't it a crucial part of your analysis to disentangle
the Halla EBITDA from the total reported EBITDA to figure out what you're running your multiples against? A. I think the amount of work we did was appropriate for the
analysis we produced. Q. Sir, answer my question, please. Is it not significant --
is it not crucial to your mode of analysis to figure out what the contribution to total EBITDA of Halla is? disentangle that, right? A. I think our report accurately reflects what Visteon's You had to
EBITDA would be absent Halla's contribution. Q. Would you like to know whether or not the company that the
Korean markets are valuing includes affiliates and subsidiaries whose EBITDA is not reported as part of Korean GAAP? that be interesting to you? A. Again, I think the markets are valuating Halla based on Would
the data that we derive from Bloomberg.
131 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. Well, I guess you're hoping that the report that you never
bothered to read is going to bear you out on this, aren't you? A. Q. I guess so. Now, I'm confused about exactly what your opinion is.
Your opinion in this case is that Visteon is solvent, is that right? A. Q. That's right. Okay. And this is the first solvency opinion you've ever
done in your life in a bankruptcy case -A. Q. Yeah. -- correct? What do you mean by "solvent"? What does
that mean? A. Q. I believe the value of Visteon exceeds its claims. And we can all agree; Visteon is an operating business, a
going concern, right? A. Q. Right. So when you say "the value of Visteon", you mean the value
of that enterprise as a going concern? A. Q. A. Yes. But you didn't do an enterprise valuation? We -- Visteon has two assets which are easily valued
separate from the non-Halla operating business. Q. Did you do an enterprise valuation of what you described
earlier as core Visteon? A. We estimated the enterprise value.
132 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. Did you not testify on Monday that you had not done an
enterprise valuation of this company? A. We have not done a formal valuation. The purpose of our
analysis is to demonstrate that Visteon has value in excess of its claims -Q. A. Q. And to --- and it's solvent. Excuse me for cutting you off. To conduct an enterprise value, the very first thing you have to do is see the company's business plan, right? A. Q. A. Q. If we were to perform a formal valuation, that's correct. You got to talk to management, right? That, again, would be part of a formal valuation. Because the thing you run discounted cash flow against,
the thing that you run multiples against, is the company's projection, as you might adjust it, of what it's going to do in the future, right? A. Q. A. Yes. And you've never looked at that here? We've looked at its trailing EBITDA and we've looked at I
estimates of what we think will be the projected EBITDA. don't believe it's disclosed in the disclosure statement. Q.
So to calculate solvency, you've got to do this enterprise
valuation and then subtract the debt, am I correct? A. I thi -- the analysis we did was we took the claims, we
133 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
subtracted two discrete assets, which amount to half the claims, and said what is the balance of Visteon worth, is it worth 1.5 billion dollars. In our view, we believe that co --
that non-Halla Visteon is worth more than 1.5 billion dollars. Q. A. But you didn't do an enterprise valuation of it, right? We do show what we think the enterprise value is of that
residual entity. Q. I need to get this straight. On Monday you said you Is the testimony today that
didn't do an enterprise valuation. you did do an enterprise valuation? A.
On Monday, and I'll say it today, we did not do a formal The purpose of our analysis is to show there's We believe the analysis shows
valuation.
value in excess of the claims. that. Q. A. Q.
Does this company have any operations in Europe? Yes. Okay. Are you interested to know whether the current
royal debt markets -- sovereign debt markets in Europe would have any impact on the 2010 projections of this company? A. Q. I've looked at projections for auto production in Europe. Well, we asked you that question on Monday and you said Is that another
you weren't able to comment, isn't that right? thing that -A. Q. No --- you've boning up on since Monday?
134 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. A. Q. A. -- I believe on Monday I said the production was
increasing, or I think I said it was relatively stable. Q. Could you take a look at page 138 of your deposition, sir? (Pause) Do you have the page? Yes. Now, what you're referring to is, there you said you
believe it is flat, correct? A. Q. Yes. Okay, and then you were asked, "Do you know why it is And you said, "Just economic environment. Right? No. I will
flat?" say no." A.
Right. THE COURT: THE WITNESS: MR. WILLETT: What page? It's 130 -The pages are reflected on the top of This is 138. It's not at
this initial transcript, Your Honor. the bottom of the exhibit. THE WITNESS: MR. WILLETT: THE COURT: MR. WILLETT: THE COURT:
I have it as 137. Well -What's the question? Do you have a different version? "Are you aware of what the outlook is for That's
the European market for the auto industry in 2010?" what you just pointed him to?
135 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
bottom. MR. WILLETT: Your Honor, forgive me. The problem is
when you have rough transcripts -THE COURT: MR. WILLETT: THE COURT: MR. WILLETT: THE COURT: MR. WILLETT: what you have. THE COURT: MR. WILLETT: I have it on 137, I think, of the mini. If you'd go to, in your exhibit, the Right, right. -- people end up with different pages. Right. But let me find it in -It looked like --- Kirkland's page, which I think is
page that has 118 at the bottom, at the very bottom of the page, which is, in fact, 138 of the transcript. THE COURT: MR. WILLETT: Okay. And then the question is, "Are you
aware of what the outlook is for the European market," and it follows from there. THE COURT: So, in the book? Wait a minute. Now you got me confused.
No, not in the book. No. It's not in the book, Your Honor.
MR. WILLETT:
I think you -- I thought you had a copy of the deposition transcript -THE COURT: MR. WILLETT: I do. -- from earlier. Okay, page 118 at the
136 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
you are. MR. WILLETT: THE COURT: version, so that's -(Pause) THE COURT: MR. WILLETT: THE COURT: MR. WILLETT: THE COURT: I apologize. BY MR. WILLETT: Q. "Q. Okay, then carrying on down the page: Would those fears have any effect on the outlook for the See, I don't have that. It should be 138. And what's the question? "Are you aware of what the outlook is". I have that. Okay, I see where we are. May I approach? Yeah. Yes. I have the miniscript you -MR. WILLETT: THE COURT: And -Somebody -- you just come show me where THE COURT: See, that's why I don't see. Why don't
European market?" You answered: "I don't want to comment -- or I am not
able to comment on what impacts the European auto market." Right? A. Q. That's correct. Okay. But if you talk to management, you might ask them
whether this is a relevant factor, correct?
137 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. A. Q. Correct. And that never happened in your work? No. They talk all kinds of funny languages in Europe, too. Is
that going to be a problem for looking at their financial statements? A. Q. I don't believe so. Now, it wasn't just neglect, Mr. Kennedy, that led you not That was actually a
to look at nonpublic information.
conscious decision on your part, right? A. Q. Correct. And if I understand that correctly, Mr. McGaan asked you
on Monday why you didn't look at available nonpublic information on the debtors' data room website. examination? A. Q. Yes. And you answered him, "Told him the truth under oath", You recall that
right? A. Q. Correct. And you said we are a full-service investment bank, have
an extensive trading operation in investment banking activities, and at this point in our involvement do not feel it is appropriate to get material nonpublic information. right? A. Yes. I also believe I said we felt the public information Is that
138 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
was sufficient to make our case. Q. You have an extensive trading operation. What did you
mean by that, exactly, having to do with Visteon? A. I don't know specifically referring to Visteon, but I know
we made markets in Visteon's -- or, we make markets in loans and bonds and stock. markets in Visteon. Q. And if you were to get material nonpublic information in I don't know if we're specifically making
Visteon, then you would not be able to trade and make markets in Visteon securities, right? A. Q. Potentially. And you said that access to that nonpublic information was
not appropriate at this point in our involvement, right? A. Q. Yes. Because you still wanted to make markets in Visteon
securities, didn't you? A. At this point, I did not want to restrict the firm. I
don't know if we're making markets in the loans or the bonds or the stock. Q. Because you might make money trading the bonds or the
stock that we're talking about today, right? A. Q. Potentially. And that trading, I think you told us this afternoon that
the U.S. trustee, writing a letter, sent bond prices, or I think it, maybe, was stock prices doubling, right?
139 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
A. I believe I said the U.S. trustee's rejection of the
request for an equity committee caused the stock price to drop. Or, let's say the stock price dropped after that letter was written. Q. It dropped. So things that happen in this courtroom
affect the prices of Visteon securities, right? A. Q. Potentially. And things that happen in this courtroom, including people
like you testifying in this courtroom, right? A. Q. Potentially. And so you've reserved the right to make money buying and
selling Visteon securities, which are going to be affected by your testimony in your case, is that right? A. Q. I've not restricted the firm. You folks are speculators like so many others in this
case, aren't you? A. Again, I do not know if we're making markets in Visteon's
loans or bonds or stock. Q. A. Q. But you've reserved the right to do that? Yes. And so the difference between your speculation and
everybody else's is that you get to testify. MR. RUEGGER: THE COURT: MR. RUEGGER: Objection, Your Honor. Basis? Argument.
140 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. THE COURT: Overruled.
Could you repeat the question? The difference between Jefferies' speculation and
everybody else's who buys and sells these securities is that you get to testify. A. Again, I think you're presuming that we're active in this I think you're speculating as to whether we're
market.
speculating. MR. WILLETT: THE COURT: MR. RUEGGER: REDIRECT EXAMINATION BY MR. RUEGGER: Q. Mr. Kennedy, you're not part of any trading arm or Nothing further, Your Honor. Thank you. Any other cross? Redirect.
operation at Jefferies, are you? A. Q. No. And I think you said you don't know whether any of the
traders at Jefferies have done any trading in any Visteon security, do you? A. Q. No. But I think you did testify that Jefferies uses the Markit
source, correct? A. Q. A. Yes. And they use Capital IQ, correct? That's right.
141 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. Do you have any understanding as to where the data from
those two sources comes from? A. Q. A. Yes. What is that understanding? My understanding is that Markit receives its data from
over -MR. WILLETT: hearsay objection. MR. RUEGGER: Your Honor, I believe that the I'm sorry, Your Honor, this is the same
reliability of that data has been challenged, and I believe the witness can give admissible testimony as to why Jefferies and the witness consider it reliable. MR. WILLETT: THE COURT: MR. WILLETT: I don't think so, Your Honor. Yeah. Mr. Willett? I mean, your
I don't think so.
testimony was you didn't know anything about this on Monday, so he's not an expert in this. people told him. MR. RUEGGER: THE COURT: With respect -So, just let me see if I get it right. He's just telling you what other
You want to inquire into the reason that he is comfortable relying on the data, is that correct? MR. RUEGGER: THE COURT: Yes, Your Honor. Okay, I'll allow that. Why are you
comfortable relying on the data, if you are?
142 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE WITNESS: data sites extensively. sites. We rely on the data. We use both those
We think they're widely accepted data
My unders -- what I found out that Markit actually has So when those
live data feeds from over forty market-makers.
market-makers actually send bid or ask indications to their clients, it is sent to Markit. THE COURT: But you just said what you've found out.
When did you find that out? THE WITNESS: Since reviewing what's published on
their website and discussions with their data specialist. THE COURT: THE WITNESS: THE COURT: THE WITNESS: MR. RUEGGER: BY MR. RUEGGER: Q. You were asked some questions by Mr. Siegel about the Do you remember that testimony? When? Yesterday and today. All right. Okay. Very well, Your Honor. You can stop talking.
rights offering, Mr. Kennedy. A. Q. Yes.
Do you have any opinion as to whether the rights offering
has affected the bond pricing? A. I think the rights offering demonstrates there is
substantial value to the rights, given that a credit or a -- if somebody wanted to invest in the rights, they would have to pay, effectively, par plus accrued for the bond and then write
143 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
another check to actually buy the pro rata share of the equity, which, as Mr. Siegel said was, you know, their pro rata share of the ninety-five percent of the equity. So they're paying
the full price of the bond, and then they get to write another check to pay for the full price of the equity. So effectively,
they're paying twice to get a stake in the company. Q. Turning to Exhibit 1 in the binder, which we've talked
about some, Mr. McGaan asked you some question about page 1 and whether it showed solvency. Including the interest accrued on
the term loan, do you believe that the data on this page shows solvency for Visteon? A. What this -- including the interest on the term loan, this
would show that the various debt instruments are trading right on top of their par plus accrued claims, which I think demonstrates that the market believes that Visteon is solvent. MR. RUEGGER: Your Honor, we would offer the exhibit
binder that we've passed around and have it before Your Honor. MR. WILLETT: MR. MCGAAN: THE COURT: this binder. Your Honor, I have some objections. I do, as well, Your Honor. Okay. Well there are six exhibits in
You're offering all of them? Yes, Your Honor. Okay. Let me hear objections. Hear from
MR. RUEGGER: THE COURT: the debtor, first. MR. MCGAAN:
Thank you.
Andrew McGaan for the
144 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
develops. debtor, Your Honor. Exhibit 1 is hearsay and is -- can I
inquire, is the -- are movants done presenting evidence? Because I have something else to address with regard to that, if they are. THE COURT: MR. RUEGGER: Any further questions on redirect? No, Your Honor. Subject to the price
schedule that we discussed earlier that we -- if we don't have this afternoon, we will serve this evening with Your Honor's leave. THE COURT: All right. Well, we'll see how it
Okay, go ahead. MR. MCGAAN: Thank you, Your Honor. So, with respect
to the offer of Exhibit 1, it's hearsay.
The witness is here
to testify about his views and -- but we certainly have no objection to the Court considering it, as we've been actively all considering it and looking at it here, but it's not evidence. But related to that, Your Honor, we move to strike the witness's testimony. I think there's been sufficient
evidence from the witness stand that this is not a reliable opinion that goes to any of the issues in dispute under this motion. The witness has -- and if you'd like to hear me on
that now, I can address it, but we can go to the exhibits. THE COURT: MR. MCGAAN: Go ahead. Okay. The witness has testified
145 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
candidly he's not done a solvency analysis before. He's
admitted now that he's got to change a submission that has been once submitted to the U.S. trustee and twice to this Court to change what shows a value in excess of debt claims, and he now admits, at minimum -- we're able to show, by the way, that it's underwater on their own logic -- but at minimum, that it's equal. So by his own analysis, it's not showing solvency.
Furthermore, he is not an expert in what the meaning is of these trading prices or quoted prices. And so there's no basis
upon which to rest such an analysis because there's incompetent evidence of what those quoted prices are and what they mean. He has no idea what the volumes are. represent actual trades. stricken. And with respect to the EBITDA portion of his testimony, which is also reflected in this exhibit, he's admitted that he didn't do a value opinion, yet this exhibit keeps using the word value. And he's admitted not looking at He has no idea if they
It is utterly incompetent, should be
any of the projected earnings of the company, not having looked at management's business plan. There's no explanation been
given, no evidence as to why he could not have, because he absolutely could have. All the other constituents who have In fact, other equity
wanted that information have had it.
holders have sought access to that information and have received it. This opinion, not only this exhibit but the
146 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
opinions of Mr. Kennedy should be stricken and the motion should be denied now without more. We would be prepared to
move forward if Your Honor would like, and if you deny my motion, we'll move forward with a witness and put on evidence. But we think at this stage, given the state of the record, again, the testimony ought to be stricken, the exhibit ought not to be admitted, and the motion ought to be denied. THE COURT: with that issue? MR. WILLETT: I do think Mr. McGaan is right. I All right. Anyone else in connection
would add only that under Rule 7022, the testimony of the expert has to be the product of reliable principles and methods. And I think we've seen that that didn't occur. MR. SIEGEL: Your Honor, and the creditors' committee
joins in the motion to strike, in particular, as to the price data as to which the requirements of reliability, even for an expert to rely on under Rule 703, have not been met here. THE COURT: MR. RUEGGER: Response. Your Honor, in terms of the pricing,
the witness has testified that these are commonly relied on in the industry. They're relied upon by institutions for trading. It's certainly sufficient to support his The pricing
The data is reliable. opinion.
It's verifiable by the other parties.
data -- and we will provide a schedule with the daily pricing to supplement that record. That analysis, as set forth in the
147 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
first three pages of the exhibit shows that when you take the prices of the debt and -- the market price of the debt shows solvency. In terms of the analysis and the second part of this exhibit, it uses straightforward commonly accepted comparable company metrics developed from the identified comparable companies. It backs up the two easily valued aspects of
Visteon, the excess cash and the Halla subsidiary and then shows what the threshold EBITDA figure has to be for there to be value for equity. estimated And then using the last twelve months
EBITDA, comes up with a figure on page 8 of excess The figures show 859.3 million to a Mr. Kennedy used straightforward
value available to equity. high case of 1.338 billion.
valuation methodologies to illustrate those figures, and his testimony, I think, support -- or, this is used to illustrate his testimony and his opinion. So we think it should be
admissible, along with his testimony, and then, we don't think there's any grounds for throwing it out as being contrary to any valuation techniques. THE COURT: Thank you. Mr. Bienenstock? The reason
MR. BIENENSTOCK:
I rise is that, as I understand it, this motion was coupled with a request that the motion to create an equity committee be denied. So if we're talking about whether there's enough to
state a claim, here, I just want to make a few comments about
148 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
that. THE COURT: Okay. First, the inquiry here is not Obviously, the Court
MR. BIENENSTOCK:
whether what the value of the company is.
would hear a lot of experts, and this would take a lot longer, as it will at confirmation if that issue is still live. The
issue, here, is whether there is a plausible basis for equity holders to be protected in this case we're in the realm of solvency, and certainly from this witness's testimony, substantial solvency. THE COURT: Well, I was going to say, I think the
question is whether there's a substantial likelihood that equity will receive a meaningful distribution. That's not It
quite -- so it may be a little stricter than what you said. says the same thing. MR. BIENENSTOCK: Well, even if it's substantial
likelihood, Your Honor, there are a number of points that need to be made. First -- I don't want to repeat everything that's
argued, but the Markit quotes from Markit and from Capital IQ are used throughout the industry, and that is clear. And the
suggestion that's being made, which I would characterize as a wise guy suggestion -- people pay all this money for these quotes, but they really have no meaning -- should not be given any weight. These quotes are what the industry uses to show There is no other purpose at
what securities are traded at.
149 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
getting this information than if you don't want to know what people are paying to buy and sell different securities. Second, the debtor is ignoring, as are the creditor groups, that there have been three disclosure statements in this -- or, at least two filed in this case, perhaps three. And they are supposed to provide sufficient information for people voting to make intelligent decisions. I'd like to
presume for today that the people who wrote those disclosure statements carried out that duty. So this 800-pound gorilla
that they're suggesting is in the room, that there's information that the witness could have had but didn't get that might show that the value is less is ridiculous because if that information is out there, they've had three disclosure statements, and all the obligations of Sarbanes-Oxley to provide that information to the market, and they haven't done it. So getting back to the guts of what this is about, are things trading at par plus interest? Yes. There's no way
that can be denied, based on all of the information available. Does it make any sense that they would trade at that amount, and then creditors would take eight cents under a plan and take a loss? No, that doesn't make sense. All of the big picture
undisputable items, Your Honor, show that there's much more than a reasonable likelihood of solvency. certainty, Your Honor. There's virtually a
And all of these make-believe horrible
150 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
imaginings that the witness didn't get certain information are outrageous, because they have federal securities obligations to provide any bad information to the marketplace. The type of
information they would be entitled not to divulge and to be inside is who are the customers, what are their new plans for next year to get a leg-up on the competition, things of proprietary significance. That's inside information that they But the notion that
don't have to divulge to the marketplace.
there's bad information about the company that would show that the market prices are wrong, if they're not disclosing that, they're breaking the law. confess to that. And they're certainly not going to
They're using horrible imaginings to have
this Court ignore the big picture, which is undisputable. And we ask that Your Honor accept the evidence and grant the equity committee because it's so obvious from every day's trades that there's equity here, or at least, as Your Honor said, a reasonable prospect of significant recovery for equity. THE COURT: Anything else on this issue? All right.
Well, there are two issues. are, what the prices are.
There's what the trading values That's just a fact. That's what you
look at on a piece of paper.
And then there's the implication
or conclusion as to what that means in the context of the case and the value and the legal question before the Court, and whether this testimony and documents are sufficiently -- well,
151 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
whether they meet the criteria for being admitted and considered by the Court. And the issue, I think, as Mr. Sabin
(sic) put it, comes down to reliability. Frankly, I view this as a valuation of a two billion dollar company on the back of a cocktail napkin. It's wholly
and completely inadequate, doesn't comport with generally accepted principles. It mixes apples and oranges, it's
simplistic, it's simply -- it was not subject to sufficient diligence. It just -- it's not worth anything to the Court.
So even were I to admit it, I'd give it no weight, or very, very, very little weight. I know Jefferies can do better.
Maybe it's because they had -- were doing it on an understanding or whatnot, but in order to be admitted into evidence in this court under the applicable standards, they have to do better. To say something's a valuation but not a And I
formal valuation, to me, that's really splitting hairs. had that issue recently, in the fall, in CCS Medical with
Goldman Sachs who went out of their way to say, numerous times, that their valuation wasn't a valuation, and yet the debtor wished to rely upon it as a valuation. Only so many semantic I denied
gymnastics are going to be useful in this court.
confirmation in that case because the debtor failed to prove its case of entire fairness, because it was an absolute priority question. Anyway, grant the motion. The testimony and the
152 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
All right. MR. MCGAAN: THE COURT: Andrew McGaan -I think, frankly, that takes care of the report are stricken in their entirety. They are not reliable
under the applicable rule of evidence and under the Third Circuit law. You may step down, sir. Any other evidence? No?
motion to appoint an equity committee because, look, I don't know what the value is. All I can do is evaluate what's put in
front of me and the evidence and how it's put in front of me, and in this instance, since I did not in anyway the evidence proffered by the movant, they, obviously, the movant can't, other than sort of arguing, I guess, inference by the -- what the trading values are, and it's very interesting information, but I don't think that's sufficient to establish a substantial likelihood that equity will receive a distribution in the case. Also, I have concern -- or, not concern but doubts that they would also be able to meet the standard of being unable to represent their interests in the bankruptcy without an official committee. So, based on the record in front of me
today, I'll deny the motion for appointment of an equity committee. Which I think turns us to the examiner motion. we take a short break before we proceed? Thank you. Can
(Recess from 6:13 p.m. until 6:24 p.m.)
153 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE CLERK: THE COURT: All rise. Please be seated. Mr. Bienenstock? It's
MR. BIENENSTOCK:
amazing how many people here were jealous of me to be able to present this motion at 6:25 in the evening. Seriously, I want
to thank the Court, as I think all the parties do, for taking all of this on in a very long day, especially being under the weather. So we appreciate it. I'm here pursuant to the ad hoc equity committee's motion dated April 2, 2010 for the appointment of an examiner. Notwithstanding all of the objections, Your Honor, no one disputes the fact that the criteria for an examiner, namely the five million dollars of nontrade debt, is satisfied here. The
entire dispute revolves around, although spun differently by different parties, the entire dispute revolves around whether there's any appropriate investigation for an examiner to undertake. And the theme and gist of the objections is that
there's nothing that can't be dealt with at confirmation, so there's, therefore, no appropriate investigation. I want to give the short answer to that, and then explain to Your Honor, again, as briefly as I can, especially at this hour, why it's especially important that an examiner be appointed in this case. Number one, taken to its logical extreme, given that Bankruptcy Code Section 1129(a)(1) and (a)(2) provide that for
154 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
a plan to be confirmed, all applicable provisions of Title 11 have to be complied with and the proponent has to comply with all applicable provisions of the title. There's nothing that
anyone can ever say cannot be dealt with at confirmation because all of the applicable laws have to be complied with in the plan. So there would never be an examiner on that logic.
And that flies in the face, both of the way Section 1104 is drafted, and more important -- or, equally importantly, as Your Honor likely recalls, the reason the examiner provision is in the Bankruptcy Code is because the House version of the Code had no trustee, and the Senate version had a mandatory trustee as there used to be in Chapter X, and the compromise is that there could be an examiner whenever you have five million dollars of nontrade debt. So now, to say that even though
there's a mandatory examiner, it really should be the exception because we can normally deal with virtually everything at confirmation basically guts what Congress wrote and why it wrote it. Now, in this case, there are several items that make an examiner, an appropriate investigation, really jump off the page. The first is, as several parties pointed out, the
appropriate investigation may include -- so it's not limited to but may include -- fraud, dishonesty, et cetera, but also irregularity in the management of the debtor by former or current management.
155 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Your Honor, I started the day by pointing the Court's attention to page 11 of the proposed disclosure statement which shows their plan of March promised twenty-five cents to creditors, and after all this standing-room-only negotiation for two months, the creditors negotiated an eight cent distribution for themselves under toggle A, which is the toggle they want. Is that not irregular? I said this morning, The numbers are not And
something is wrong, here, Your Honor. logical. They don't flow.
There is something very wrong.
the equity in this case that will be extinguished if the other parties in the room get what they want, is the party that suffers from what is very wrong, here. And on that, it may not be necessary, but I do want to point one important fact out, so as not to overlook the obvious. Just as surgeons, because they're accustomed to
blood, can go into an operating room and see a body torn apart and not blink and it's just what they do everyday and they're not affected by it, bankruptcy lawyers, professionals and judges can discharge debt all the time without even thinking because that just happens as part of the process. I'd like to
emphasize that just as the heart operation is severe medicine and dangerous and it's only undertaken when absolutely necessary, wiping out creditors or wiping out shareholders is just as Draconian, is just as dramatic, and should only be done when all of the Bankruptcy Code's provisions are adhered to.
156 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
And some of those provisions are there to increase the value of the estate. Other provisions are there to provide sunshine so
even though someone has to lose their claims and not be paid in full, they understand exactly why. This case is a black box.
Believing their disclosure statement at face value, they've negotiated in a rising environment, the Court can take judicial notice of their own results that they published, their monthly operating reports, the results of the industry, everything is up, up and away. And yet, they negotiated two months so that
the noteholders get a lower return, according to them, by as much as two-thirds. Your Honor. And then as we saw in the cross-examination of the Jefferies witness, there are these allusions to things that are not disclosed that he could have found out about, but he didn't. We want to bring those to light. And I don't know There's something wrong with the numbers,
what they are.
My clients' financial advisor, I believe, has
had access and has used access -- I don't know if they gave us all their information, but certainly a lot. We're not aware of But if there
bugaboos, of things that will depress valuation.
all right things out there that make it crazy for debt to be trading at par plus and premiums and all that stuff and explain why the returns after negotiation went from twenty-five cents to eight, and yet people are still paying more than par, an examiner ought to find out about them.
157 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Second, I pointed out this morning, so I'll only spend one or two sentences. The debtors have written in black
and white, they're understanding of Gheewalla is that when they're insolvent, the duties to shareholders, the fiduciary duties shift to creditors. their view. We think they're wrong, but that's We don't have
It's their view that's important.
anyone looking after us, Your Honor.
And while I would be
flattered, et cetera, for the debtor, as its said already, and others to say, oh, look at the professionals representing the shareholders, the bottom line is we can't do what an examiner will do, and certainly in the timetable the examiner will get it done. And we don't file public reports; examiners do.
That's one of the key advantages of providing sunshine in this case and in all Title 11 cases. The examiner files a report.
All of these allusions Your Honor heard in cross-examination to these horrible things that they would have found out, had they asked, the examiner will find out if there are any and will say it in a report. being wiped out. We're accused -- I think I mentioned this earlier, Your Honor, but we're accused by the term agent at page 5, paragraph 11 of their April 30 pleading, that our motion for an examiner is a leverage play. again. Let's just think about that And we deserve to know if that's why we're
The debtors have entered into a lockup agreement --
they call it a plan support agreement -- with the
158 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
noteholders -- I think illegally, but Your Honor will deal with that another time -- requires that they not only support this plan and not support any other plan, but that they agree now to a vote for this plan. Is that not leverage? They've
throughout their plan included all these provisions that will render any attempt to review moot if a stay pending appeal is not granted. And we know they're going to argue that they have Is that not leverage? They have
to go effective immediately.
the checkbook against all of Visteon's balance sheet to support any type of attack on us, defense to our claims, whatever at confirmation. We don't have that. We're private parties with
funds that obviously have to operate in a rational manner. There ought to be an examiner who comes out and says this is why the debtors' management and directors either did or did not fulfill their fiduciary duties in this case by trying to find the best possible plan for shareholders. And I say
shareholders and not creditors because by definition, a plan that cuts in shareholders will pay creditors in full. Maybe
not in the manner they'd like to be paid; maybe in a note but they'd rather have cash or stock. But they will be paid in So for us to
full as far as the Bankruptcy Code is concerned.
benefit, there has to be a payment in full to them and then we get whatever is left. decisions. The problem is they've made arbitrary Now they don't want more They don't want this; they
They don't want debt.
than 400 million dollars of debt.
159 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
don't want that. And there's no indication to us, in fact,
there's every contrary indication, that they tried to do a legal plan cutting in shareholders. opposite. They really did the
And I went through the economic motivations earlier
as to why their management, their professionals have an incentive to do the opposite, to do the plan that's on the table. Eight million to Rothschild, et cetera, et cetera, are An examination will cut through that.
economic motivations.
The creditors' committee, in its April 30 objection, says they have a plan. Why should there be an examiner? Well,
there's nothing in the Code that says the entitlement to an examiner is subordinate to a party-in-interest -- that there's nothing in the Code that says confirmation of the plan process renders subordinate a party-in-interest's right to an examiner. There is, at the very least, a major irregularity based on the disclosure statement. There is, at the very least, the
debtors' admission that it doesn't think it owes any fiduciary duties to shareholders. right. We're entitled to an examiner as of
There's more than five million dollars of nontrade debt
to be appointed to investigate and to write a public report filed with this Court as to what is lurking in there as to why the valuations are less than the entire market believes, notwithstanding that if the debtor is complying with SarbanesOxley and the disclosure statement standard under Section 1125 that there wouldn't be any surprises as the debtors alluded to
160 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
earlier. So we think it's fairly clear we're entitled to this. I hope I didn't take too long, and again, I thank the Court for staying and listening to this. THE COURT: MS. LEAMY: the U.S. trustee. motion. Thank you, Mr. Bienenstock. Good evening, Your Honor. Ms. Leamy? Jane Leamy for
We had filed a statement regarding the
U.S. trustee believes that the appointment of an
examiner is mandatory in this case because the requisite debt threshold has been met. There is recent case law in this We believe the
jurisdiction that would suggest otherwise. facts of this case are different.
It is late in the case, but And also, from the
we're not at the confirmation stage yet.
pleadings that have been filed, it doesn't appear that the parties that are in support of the motion, the equity holders, have had an adequate opportunity to investigate as they did in Spansion; everything was fully investigated by that point. The movants have raised valid concerns regarding the mechanics of the reorganization process, and the U.S. trustee believes that an examiner who would present an impartial view would benefit the parties in this case, the creditors and the equity holders. And of course, the Court retains the
discretion to order the appropriate nature and scope of the investigation. Thank you, Your Honor. Thank you. Anyone else?
THE COURT:
161 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
MR. MAZZA: for the debtors. Good evening, Your Honor. James Mazza
I'll try to be brief.
The appointment of an Mr.
examiner, here, is not appropriate, Your Honor.
Bienenstock has said the debt threshold has been met, and that's true. One thing that didn't come out in Mr.
Bienenstock's pleadings or the U.S. trustee's pleadings is the view that you espoused in the American Home Mortgage case where an investigation has to be appropriate. investigation that is being sought here. There's no It is solely in
relation to the valuation issues that have swirled around the courtroom today. And Mr. Bienenstock and his clients are well-
heeled and sophisticated enough to be able to deal with those issues in that context, and an examiner is not something that is necessary here by any stretch of the imagination. As
Collier rightfully warns, the examiner statute shouldn't be -and I'm quoting, "used to allow one group of creditors or interest holders to obtain a protagonist supporting its litigation position under the guise of an investigation". That's exactly what's going on here. The order that was
proposed along with this examiner motion goes through a litany of items that solely relate to trying to extract a recovery for equity holders in this case. their case at confirmation. Again, they're entitled to put on They're entitled to make those
arguments, but having an investigation doesn't serve any purpose whatsoever here.
162 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Your Honor, there's been statements about sunlight needing to be shed on these cases and irregularities. And the
fact of the matter is Mr. Bienenstock's clients, their advisor at Broadpoint has been given access, as Mr. Bienenstock has admitted, access to a comprehensive data room. They can troll
that data room and come up with whatever ideas they'd like. Rothschild, the debtors' investment banker, has been available to discuss any questions that Broadpoint would have, regarding valuation. The fact of the matter is that the sunlight that
they're staring at is 1.25 billion in junior capital that is being raised as part of a plan. And they haven't approached
the debtors with anything that even comes close to that, and as Your Honor noted earlier in the hearing, the best indication of market value is what parties are willing to pay. And we hear
talk from the equity holders about theories of desktop valuation and a valuation that was not really seen as one and debunked earlier in the context of the equity committee motion. But what's going on here is a request, with respect to an examiner, to help espouse a theory, a theory that only goes to theoretical valuation numbers without any support as to what is going on, actually, in the case. Your Honor, there's also been -- just to correct the record and the statements with respect to what the debtor has said in connection with its fiduciary duties and the debtors' interpretation of the Gheewalla case, the debtor has said in
163 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
its pleadings throughout that it has fulfilled its duty to maximize value of the estates, which includes the value to the extent it accrues to the shareholders. The fact is, the
debtors believe in their business judgment and the valuation that they've put out there that there is not any value that does accrue to the shareholders. And without an equity
committee, I think, being appointed, it doesn't appear that those facts will be the case. And for the debtors to make
that -- to propose a plan on that business judgment that is backed with money, that on a junior capital basis being provided as a capital infusion makes sense. And the
interpretation of Gheewalla, which I'm not going to go into as far as creating some sort of super fiduciary duty that a debtor must gamble the entire business to try to satisfy equity holders is simply an absurd reading of that case. Just to address a few of the points that were also raised by Mr. Bienenstock in his argument, I think that, you know, he talks about a plan support agreement being something wrong with that. That's not before Your Honor today, but the
bottom line is that when it is before Your Honor, you'll see there's a very broad fiduciary out provision that to the extent a better transaction comes along, then the transaction that involves, again, a real junior capital infusion, that the debtors have the ability to go another route. And again, they
have not heard of any sort of transaction that would lead up to
164 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
that at this point. The trading price issue that came up in the equity committee motion that Mr. Bienenstock has raised again in the context of the examiner, that's not in evidence, Your Honor, and so it should be stricken and should have nothing to do with the request that's being made here for the examiner and not be taken into account. The bottom line, here, Judge, I think, is this examiner request is just another way the equity holders are trying to hedge their bets. Mr. Kieselstein reminded me of another issue on the alleged irregularities with the eight cents under the plan and disclosure statement. The way that works under the plan is
that the rights offering is provided to eligible holders under securities laws, and the eight cents accounts for what that recovery would be, based on their ability to infuse or take advantage of the rights offering. But the eight cents doesn't So
actually account for that intrinsic value of the rights.
those particular eligible holders, who, by the way, are the signatories of the plan support agreement that will be before Your Honor. The noneligible holders who are not allowed to
participate under the rights offering because it's a private placement, those parties who are not qualified are receiving an additional cash payout, which makes their payout higher in the case, and it's up to a fifty cent recovery. So while it's
165 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
reflected with respect to those parties within that particular class to the extent they're eligible or noneligible, that eight cent number is -- there's nothing irregular going on, there. It's just a number that reflects the true recovery based on -or, just the recovery based upon a five percent share of the pro rata value of Visteon. But then, in addition to that,
there's additional recovery to the extent that these parties who are eligible exercise their rights. So to call it
irregular is to miss the point as to that particular item in our disclosure statement. Just to sum up, at the end of the day, this is really an attempt to hedge their bets so that they can get another way to get the estate to fund their campaign and endorse their views. And really, if they have the courage of their
convictions, the least they can do is put their money where their mouth is and fund their litigation, if they truly believe the company is worth what it's worth. They don't need an
examiner to come in and explain to them the plan that's been filed or how they can develop a plan that will keep equity in the money. Their ideas have been shown to us, and their ideas,
frankly, don't amount to much as far as any sort of capital. Thank you, Your Honor. THE COURT: You're welcome. Your Honor, are you hearing the
MR. SILVERSTEIN: phones or is that the end?
166 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE COURT: What? Hello? Yeah, it's Paul Silverstein. I'm
MR. SILVERSTEIN:
wondering if you'll hear folks on the phone or -THE COURT: Oh, yes, Mr. Silverstein. I'm sorry. I
just didn't -- you came through kind of garbled. MR. SILVERSTEIN: THE COURT: I'm sorry, Your Honor.
Yes, please. Thank you, Your Honor. Paul We
MR. SILVERSTEIN:
Silverstein with the interest group.
I'll be very brief.
represent a newly-formed ad hoc group of trade claimholders, presently consisting of Liquidity Solutions, Fulcrum Fund, and Haynes Capital. We're in the process of preparing a 2019
statement and will promptly file it. With respect to the present motion of the employment of an examiner, as a legal matter, the only issue we see under 1104(c)(2) is the scope of an examiner's investigation because the appointment of an examiner under the statute is mandatory. To the extent the Court directs the appointment of an examiner in these cases, we would request that the examiner's investigation specifically include a review or examination of the backstop rights offering in the debtors' May 7th plan that specifically is not being offered to all unsecured creditors. My clients, who are each credit investors, are among those creditors excluded from participation, and we believe such exclusion is improper, and the circumstances surrounding the
167 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
backstop rights offering should be the subject of any examiner's investigation. THE COURT: Thank you, Your Honor. Anyone else? Can I hear
You're welcome.
from the committee -- the official committee? MR. SIEGEL: The official creditors' committee. Your
Honor, at this hour, we are content to rely on our papers, although I will say, in his absence, that we lay fully at the doorstep of Mr. Stark the Purandello (ph.) reference in our objection. otherwise. THE COURT: MR. SIEGEL: Okay. Your Honor, this is a case where, with It does not represent the position of Brown Rudnick
all due respect to the movant here, we're well along the path to a confirmation -- what appears to be a contested confirmation with a number of issues, including the various issues raised in the examiner motion. those determinations. And this Court will make
The equity groups, here, and there are Mr. Bienenstock's
three equity groups, as the Court is aware:
clients, who hold in excess of twelve percent of the equity, as they report in these proceedings, they are obviously represented by competent counsel and financial advisor, based on 13-D filings, which we attached to our objection; Aurelius and its affiliated companies own in excess of eight percent of the equity, they have disclosed in their 13-D filing and have made known to the debtors, I believe, that they are represented
168 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
by counsel and are engaging in discovery; and of course, the other equity group that was prosecuting the equity committee motion. So the equity movants, in total, represent more than They
twenty-three percent, by my count, of the equity here.
are fully capable and are being given access by these debtors to information, and will have the opportunity to present all of their concerns as this case moves steadily toward a confirmation contest. THE COURT: MR. WILLETT: Thank you. You're welcome. Mr. Willett? Sabin Willett If you
for the term loan lenders.
I'm concerned about harm.
were to appoint an examiner, we've got to all sit still while he lawyers up and advisors up and reviews every scrap of paper and wait for a report. We have the cost, of course. And most
of all, what does Korea think, what does China think, what does Europe think, what does the world think about the fact that, like Refco, Lehman, and other horrific cases, we now have an examiner in this case. It would be absurd for the people who
are interested in a positive recovery, here, to create that potential risk when all this examiner is being asked for is things they can get themselves by going to the data room. Mr. Bienenstock is correct about one thing. support agreement is highly irregular. examiner for that. The plan
But we don't need an
We can just read it and address it with I wish I'd been clever enough to coin
Your Honor next week.
169 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
reply? MR. BIENENSTOCK: Yes, Your Honor. I'm delighted this phrase -- some judge did -- but this really is "crying examiner in a crowded room", and it should be denied. Your Honor. THE COURT: All right, anyone else? Mr. Bienenstock, Thanks,
with what I heard, because the creditors' committee apparently feels that they can rewrite the Bankruptcy Code and argue to Your Honor that because the equity holders have competent counsel and financial advisors, they said, that's a defense to an examiner motion. No, that's a defense, perhaps, to a motion The Code doesn't have any
to establish a statutory committee.
balancing test, any defense that if parties are adequately represented, that that's a defense to the appointment of an examiner. Similarly, Mr. Willett has asked the Court, what will the world think. What will others think? It doesn't matter.
The Code doesn't say appoint an examiner when there's five million dollars of debt unless other people will think bad thoughts. We have a right. I'm tickled pink that my
adversaries have felt the need to construct out of the clear blue sky defenses that don't exist. And I think what that
tells the Court is that we're entitled to an examiner to investigate the things we asked for, and we hope the Court will grant them.
170 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE COURT: Thank you. Excuse me. All right, the
issue, of course, before the Court, is whether to appoint an examiner, pursuant to the motion in front of the Court. the statute which is applicable, of course, is 1104(c). And "If
the Court does not order the appointment of a trustee," which I have not, "then at any time before the confirmation ... on request of a party in interest ... and after notice and a hearing, the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including" and then it goes on, "if such appointment is in the interests of creditors" equity holders, et cetera, "or the debtor's fixed, liquidated, unsecured debts ... exceed $5,000,000." It's a troubling -- well, troubling,
it's a somewhat ambiguous statute notwithstanding the fact that it says "shall", because it immediately limits the scope of that "shall". I don't think it's true, and I think it would be
an absurd result to find that in every case where the financial criteria is met and a party-in-interest asks, the Court must appoint an examiner. There has to be an appropriate
investigation that needs to be done. Now, it's -- until someone does an investigation, of course, you don't know whether an investigation really needed to be done or not. But at some point there has to be a level
of smoke, if you will -- not a lot but more than none, more than just a whiff of smoke -- but some sort of indication, some
171 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
sort of allegation or facts that make the Court think in a whole that, hmm, somebody needs to look into this independently and tell the Court what's going on. It's easy in Lehman or
Revco to figure out that somebody's got to figure this out. But not every case that has over five million dollars of nontrade needs an examiner. This case does not need an examiner. good old fashioned brawl, all right? We are in a And the
We all know it.
prize is an automobile company -- excuse me, a parts -- well, an automobile manufacturer of parts -- with a nice healthy client. Kind of a rarity, but it's nice to have. There's going to be a fight. And we're
going to fight. to it.
Well, let's get
And I don't think there's any reason to keep tiptoeing Equity thinks they're in the money. They're going
around it.
to come to confirmation and they're going to try to prove it. Mr. Willett's clients have an issue with what's on the table. They're going to come in and litigate it. The bondholders like
what's on the table or support it; they're going to come in and litigate it. There are no hidden motivations, here. I think this is just a good old There are
hidden agendas, here.
fashioned fight over a debtor that has some value, if it's restructured. It's a good company with a bad balance sheet. Maybe that's wrong. Maybe it's a
That's what it looks like.
good company with a good balance sheet. confirmation is going to tell us.
But that's what
172 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
To say that, well, look, Judge, you know, they say they don't want more than 400 million dollars in debt, well, all right, that's their business judgment. When we get to
confirmation and we're looking at value and part of the value is a debt analysis or a debt carry analysis and the absolute -applicability of the absolute priority rule, we'll hear about it, and we'll figure out whether that makes sense or not. don't need an examiner to look into that. Has the debtor not fulfilled its fiduciary duties by not taking enough attention to what the value is to equity, first of all, I think the Gheewalla decision and those other cases, it's important to remember that that arises in the context of a defense, of a shareholder suit based on a breach of fiduciary duty by the board when it takes actions of an insolvent corporation that are for the benefit of creditors. And the Court says that's not a breach of fiduciary duty of care or loyalty to the corporation or its shareholders. very narrow focus. It's a We
Is it true that insolvent debtors owe a I think it becomes a bit of I think
fiduciary duty to their creditors?
a "how many angels are there on the head of a pin".
the reality is that the board of directors of a company in this kind of context owes a fiduciary duty to the company, which is probably the best way to say it, to maximize value. And that
means reorganization value in this context, and that can take into account debt load.
173 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
you. 19th. please. MR. KIESELSTEIN: We will do so, Your Honor. Thank So again, and I'm probably rambling more than I should because it's late, but I just don't see any appropriate investigation in this case for which we need the time and expense of an examiner. We don't need an ad hoc -- we don't We don't need, We need to get
need an official committee of equity holders. frankly, continuing status reports on a plan.
busy and get it done and roll the dice and see what happens. That's just me. Probably talking more than I should. Motion denied. Debtors submit an order,
All right.
One last housekeeping item, Your Honor, relates to the We do have a motion to shorten notice on file with
regard to our motion to approve the ECA, the plan support agreement, and the rights offering procedures. Again, at least
in our view, and I know we're imposing a burden on the Court, it doesn't make sense to decouple that from the disclosure statement hearing itself, given that those are the foundation documents associated with our toggle plan of disclosure statement. So if the Court can -- if I can impose on the Court
at this late hour for guidance in that regard, I think it would help all parties prepare for the next few days or week. THE COURT: decided it yet. Mr. Willett? Well, I have the motion. I just hadn't
Well, does anyone wish to be heard on that?
174 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
MR. WILLETT: Your Honor, I think I should just say, But
I don't expect a complicated disclosure statement hearing.
I do think -- and I don't expect evidence -- but I do think you will find that the documents underlying this motion to approve plan support agreement and equity commitment agreement, they are difficult, they are complex, and it will take a while to unpack the problems. We'll do it in argument, and we'll start
at 4 in the afternoon if you want, and we'll do it as soon as you want. But I just want you to know, it's not a quick, easy, Thanks.
cut-and-dried legal argument. THE COURT:
Mr. Bienenstock? Your Honor, in the same vein, one
MR. BIENENSTOCK:
of the elements of that agreement is that fifteen million dollars, approximately, gets paid out before the confirmation hearing even starts. It's like, you're, from my point of view,
the Court's being asked to confirm a plan, a little bit, before confirmation hearing. I agree with Mr. Willett; the plan
support agreement is -- or, the equity commitment agreement and the plan support agreement are complicated. take some time. of issues -THE COURT: Yup. -- and a lot of time. They're going to
I don't anticipate witnesses, but it's a lot
MR. BIENENSTOCK: THE COURT:
Having just told you people to get busy, Go ahead.
would it be hypocritical to say that's too busy?
175 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
problem. THE COURT: MR. SHORE: THE COURT: like you better. MR. SHORE: That's a relative comment, though, so if Oh. Are you from New York? remark. MR. SIEGEL: Your Honor, I was anticipating that
The creditors' committee does concur with the Court's
earlier remarks that we appear to be headed toward a battle, one that needs to be fought. And while the 19th may not be the
best day to start all of this at 4 o'clock, we would encourage the soonest date the Court's schedule permits to hear -THE COURT: MR. SIEGEL: THE COURT: Yeah. -- all of these matters together. I want to give it a full day, and I'm So
going to give you a day I'm supposed to be on vacation. there you go. 10. Don't I love you.
Monday, May 24th, starting at The disclosure statement and
And that'll be everything.
the plan support agreements. little later?
Mr. Shore, you want to go a
No, I know you're coming from Miami, so -No. I'm from New York so I have no
MR. SHORE:
I am from New York, yeah. I thought you were from Miami. Oh, I
I don't know what the baseline is. MR. LAURIA: MR. SHORE: Better than what, Your Honor? I'm just -- I'm here on the fight,
obviously, and it's just a scheduling issue, and I know Your
176 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
212-267-6868
Honor likes to be kept apprised of what's going on. We got, as
lead investors, subpoenas from Mr. Bienenstock's firm for every single one of the lead investors and all of the investors in the backstop that asked for documents and subpoenas that asked for depositions of all the lead investors. We're trying to
work it out with them, but even if we're proceeding on the 24th now, we're going to have to resolve it if we can't get it done. I was just wondering what Your Honor's availability is tomorrow or the next day to handle a conference call. THE COURT: out all day. Yeah. Tomorrow's no good at all. I'm
But I'm in Friday. Okay. So we'll try --
MR. SHORE: THE COURT: MR. SHORE:
Off and on. We'll try to work it out. We may be able
to separate out what's ECA discovery and what's plan discovery, but if we can't, I'd like to address it sooner rather than later. THE COURT: the heads up. MR. SHORE: THE COURT: Thank you, Your Honor. All right. So May 24th at 10 a.m. on All right, that's fine. Thank you for
disclosure statement and on the three -- is it three agreements? How many? I believe it's one motion --
One motion.
177 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
MR. KIESELSTEIN: THE COURT: one motion to shorten. desk. All right. -- to approve the ECA. One motion, It's on my
And one motion to shorten. Okay. I know where it is. Adjourned.
Very good.
MR. KIESELSTEIN:
(Whereupon these proceedings were concluded at 7:06 p.m.)
178 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
DESCRIPTION Eighth and ninth omnibus objections to claims entered UK Pension claims objection entered Debtors' cash collateral motion granted Debtors' third motion to extend their exclusive periods to file and solicit votes for their Chapter 11 plan granted Motion to strike testimony of Mr. Kennedy granted 151 25 23 23 80 11 18 22 R U L I N G PAGE 22 LINE 24 WITNESS Hal Kennedy Hal Kennedy Hal Kennedy Hal Kennedy Hal Kennedy T E S T I M O N Y EXAM BY Mr. Ruegger Mr. McGaan Mr. Siegel Mr. Willett Mr. Ruegger PAGE 87 107 121 129 140 LINE 5 22 3 13 12 I N D E X
179 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
DESCRIPTION Motion for appointment of an equity committee denied Motion of ad hoc equity committee to appoint examiner denied 173 9 R U L I N G PAGE 152 LINE 21 I N D E X, cont'd
180 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Date: May 14, 2010 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Lisa Bar-Leib, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N
Lisa Bar-Leib
LISA BAR-LEIB
___________________________________
Digitally signed by Lisa Bar-Leib DN: cn=Lisa Bar-Leib, o, ou, email=digital1@veritext.com, c=US Date: 2010.05.14 13:28:22 -04'00'
AAERT Certified Electronic Transcriber (CET**D-486)

10000003629

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

10000003629

Загружено:

Авторское право:

Доступные форматы

Hearing Date: September 1, 2010, at 8:30 a.m. Eastern time Objection Deadline: August 23, 2010, at 4:00 p.m.

VISTEON CORPORATION, et al.

May 12, 2010 10:05 AM

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

Good morning, Your Honor.

matters that are going forward, Your Honor.

MR. KIESELSTEIN: THE COURT:

You're going to need to walk

Your Honor, I believe everything is

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

MR. KIESELSTEIN: No outstanding issues.

The eighth is the same, Your Honor.

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

So I'm going to need some help. Oh, okay, Your Honor.

MR. KIESELSTEIN: THE COURT:

You have to walk me -We've got orders and we can submit

I don't need to see blacklines.

the ninth and tenth? bit.

This is the tail wagging the dog a little

the eighth and ninth as agreed. MR. KIESELSTEIN:

I'll await the others.

And then, Your Honor, I did think

VERITEXT REPORTING COMPANY 516-608-2400

I don't have that

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

MR. KIESELSTEIN: THE COURT:

And what's going forward?

26 is continued. MR. KIESELSTEIN: THE COURT: 26 is continued but --

27 is going forward? 26 is going forward in the sense

26 are the various joinders/motions

but I guess the tie goes to the objector. right.

VERITEXT REPORTING COMPANY 516-608-2400

And the equity committee motion is

VERITEXT REPORTING COMPANY 516-608-2400

are not prepared to announce support for that plan.

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

That's the debtors' view

I'm sure they can speak for themselves on that.

And that theme will no doubt pervade

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

Your Honor's schedule and the views of other parties.

practice is in that regard.

And I'll cede the podium to whoever else wants to be

Thank you, Your Honor.

VERITEXT REPORTING COMPANY 516-608-2400

of signing on a plan support agreement. of the deal.

And I do think that the issues that divide us now

And that's important. Second is the treatment of trade. The bondholders,

The trade is immunized.

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

I think this will be consensual.

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

toggle plan has arisen.

VERITEXT REPORTING COMPANY 516-608-2400

And that compares to something else you'll hear

And all of the good feeling about

VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400

Your Honor will hear a lot more about And we think

But that's the way we see the case.