DUSTIN WALSH

Visteon compensation numbers speak for themselves, even if people wouldn't

Dustin Walsh covers auto suppliers for Crain's Detroit Business, an affiliate of Automotive News.

Monday's story on Visteon Corp. CEO Don Stebbins and how his executive team walked away from bankruptcy -- I would speculate, grinning from ear to ear -- was not an easy one to write for Crain's Detroit Business and Automotive News.

My first dozen or so calls triggered an immediate hiss. You could literally hear the I-just-stubbed-my-toe expression on their faces over the phone lines.

But no one wanted to talk about it. Not directly, not at all. Not in this town.

Responses ranged from, "Wow!" "God Bless Don Stebbins," "I'm squirming in my seat just thinking about how this story is going to go," and "no comment." -- which is what I heard the most.

Automotive News, too, sought comment for my story from various industry players, to no avail.

Sources felt discussing CEO pay to be too taboo or too negative in a time when there's a taste of recovery on the tongue.

However, $27 million -- making him the highest paid public CEO in the state -- was too glaring to ignore. Especially after Visteon missed analyst projections and only turned $39 million net income in the first quarter this year.

I eventually received a call back from the New York lawyer representing the ad hoc equity committee of shareholders in the case. You may remember, he called the court-approved bankruptcy plan "perverse" on the grounds that management and bondholders worked together to draft a plan designed to benefit both parties, while putting the squeeze on shareholders.

So, I talked to a representative from a large shareholder group, which owned a significant chunk of Visteon shares prior to bankruptcy.

The court battle that ensued had less to do with the survival of the company than who was going to get paid. See, Visteon was doing better while under bankruptcy protection, losing less money and re-writing contracts. All three parties, shareholders, creditors and management, knew the company was going to survive.

Large chunks of the company didn't need to be sold off to repay creditors -- although it could have when Johnson Controls sought segments of the supplier, which would have likely benefited shareholders -- because its new stock would be valuable moving forward.

As the story detailed, Visteon exited bankruptcy with its creditors receiving 45 million shares, shareholders getting one million and its execs pocketing 1.7 million shares. Stebbins' shares alone are worth over $20 million (they were worth $21.5 at the time they were awarded).

Today, those shares are worth more than $3 billion, $80 million and $114 million, respectively. This translates to a roughly $1.9 billion profit for its creditors, which were owed $862 million prior to bankruptcy.

So, Visteon's stock is performing. But that's not the argument. It's about the distribution of the new shares to pay back those that are owed.

"It's always nice for the stock to go up," my off-record source told me. "It doesn't change the fact that the distribution of the pie in bankruptcy among creditors, management and shareholders was unfair to shareholders."

There are winners and losers in every bankruptcy case, but to what extent?

James Sullivan, the New York attorney quoted in the story who represented several suppliers to Visteon in the case, said shareholders got nothing in the Dana Corp. bankruptcy.

However, the creditors were also never repaid their full loans made to the then-troubled supplier.

In the Visteon case, creditors not only received their money, but have more than doubled it. That's like giving your mortgage lender twice the original cost of your loan after you struck oil in the backyard.

In bankruptcy, some walk away empty handed and others with pockets full. In this case, Chapter 11 proceedings were no more than paper tigers to Stebbins and his team, who are no doubt winners as they watch the VC ticker scroll across the bottom of the TV screen.

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