WILMINGTON, Del. (Bloomberg) -- Visteon Corp.'s plan to exit bankruptcy this year is being threatened by a group of creditors who say they have enough votes to defeat the auto-parts makers' reorganization proposal.
Creditors who hold at least 60 percent of the $167 million debt owed mainly to Visteon's suppliers will vote against the plan, according to a person familiar with the tally, who declined to be identified because the information isn't public.
Three distressed-debt investors that hold about $20 million in supplier claims have collected pledges to vote no from creditors with at least 60 percent of the so-called trade debt, according to the person, who has been involved in canvassing creditors about their votes.
“A rejection by the trade claims could stop the plan cold,” bankruptcy attorney Martin Bienenstock said. Bienenstock represents a group of Visteon shareholders who also oppose the plan.
Visteon spun off from Ford Motor Co. in 2000. It filed bankruptcy last year, citing a drop in auto sales that hurt the company's ability to pay its debt load.
Visteon's reorganization proposal has divided creditors owed at least $2.8 billion. Bondholders who are sponsoring the plan would own 95 percent of Visteon, with current shareholders getting the rest. General unsecured creditors, including the suppliers, would be paid about half what they are owed, according to court records.
The official committee of unsecured creditors, which includes suppliers, supports the current plan. Committee attorney Robert Stark said he was skeptical that the three distressed-debt investors could deliver the no votes.
“In my experience, most trade creditors are not hedge funds,” Stark said. “If they can get a cash distribution, they will take it.”
The trade creditors hold a key position in the bankruptcy case, even though their claims are much smaller than the $870 million owed to bondholders and $1.63 billion owed to lenders, Bienenstock and Paul Silverstein, the lawyer representing the three distressed-debt investors, said.
A no vote by suppliers may cause Visteon's reorganization plan to violate the U.S. Bankruptcy Code in as many as two ways, according to Bienenstock and Silverstein.
If more than 33 percent of the suppliers reject the plan and shareholders vote in favor, Visteon's reorganization proposal may be in violation of a section of the U.S. Bankruptcy Code known as the absolute priority rule, Silverstein said. Under that rule, shareholders can't recover anything unless unsecured creditors like the suppliers are either paid in full, or vote in favor of the reorganization.
Silverstien said he has been told by creditors that at least 33 percent of the general unsecured debt, which is mostly owed to suppliers, will vote against the plan.
The three distressed-debt investors are Fulcrum Capital Holdings LLC, based in Austin, Texas, Hain Capital Group LLC of Rutherford, N.J., and Liquidity Solutions Inc., of Hackensack, N.J.
The importance of the vote also involves a different part of the bankruptcy code, Bienenstock said.
The code requires at least one class of creditors who aren't being paid in full and in cash to vote in favor of each of Visteon's subsidiaries' reorganization plans, Bienenstock said.
For some of Visteon's operating subsidiaries, the trade claims make up the only class that could meet that requirement, he said.
Marc Kieselstein, an attorney for Visteon, declined to comment for this story.
U.S. Bankruptcy Judge Christopher S. Sontchi is required to consider the votes of all creditors when deciding whether Visteon's plan complies with bankruptcy law. Creditors have until July 30 to vote. Sontchi scheduled an eight-day hearing on the plan starting Sept. 28.
Visteon's reorganization proposal is built on a stock sale being sponsored by bondholders.
Shareholders and lenders opposed the sale, claiming they could arrange a similar deal that didn't require Visteon to pay tens of millions of dollars in fees.
Visteon has proposed fully repaying the lenders and giving shareholders some stock and allowing them to buy more. Should shareholders vote in favor of the plan, they could own as much as 5 percent of the company, according to court documents.
Bondholders would get 95 percent of the new stock in exchange for a $1.25 billion investment.
More than 40 bondholders have agreed to invest $300 million in Visteon and guarantee that $950 million worth of new shares will be purchased when Visteon leaves bankruptcy. The bondholders include the distressed investing units of Deutsche Bank Securities Inc. and Goldman, Sachs & Co., and hedge fund manager Stark Investments.
Visteon ranks No. 21 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $6.42 billion in 2009.