Bad Plan, Dura Creditors Chant

The proposed reorganization wipes out $500M in debt, but even bondholders who would be repaid in full are against it.
Stephen TaubNovember 13, 2007

Still more creditors are coming out against Dura Automotive Systems’ controversial reorganization plan.

Two groups of bondholders said the plan to emerge from bankruptcy is unfair and should be revised. The investors, who hold $88 million worth of Dura’s 9 percent subordinated debt, also said they doubt the auto parts maker will be able to find the cash it needs to emerge from Chapter 11, the Associated Press reported.

Under the plan, Dura will be controlled by private equity firm Pacificor LLC, which plans to pay $160 million for 42 percent of the reorganized Dura, and a number of current executives, the AP report said.

Under the reorganization plan, current shareholders will be totally wiped out. That is not unusual, but the plan also cancels about $500 million worth of debt and sets aside up to 10 percent of the stock of the post-Chapter 11 company to reward management, according to the AP.

Bondholders who would be repaid in full on their $225 million investment also oppose the plan, asserting that they are being paid $2 million less in interest than they feel they are entitled to, the AP reported.

The subordinated debt holders reportedly said in court papers that allotting 10 percent of the new stock for its top executives is unfair since people who invested hundreds of millions in Dura will get no recovery.

” There is a strong possibility that (Dura’s) management will receive 10 percent of the distribution shares on account of nothing,” lawyers for subordinated debt holders wrote in papers filed with the U.S. Bankruptcy Court in Wilmington, Del., according to the AP.

Dura filed for bankruptcy in October 2006. A hearing for its reorganization plan is scheduled for December 6.

The noteholders, however, said Dura hasn’t even been able to get its lenders to extend the term of its bankruptcy financing beyond Dec. 31 because the lenders are “nervous,” according to the AP report.