Lenders representing more than one-third the outstanding bank debt claims of Hayes Lemmerz International were holding out on approving the company's current plan of reorganization last week, still looking for more recovery as LMW went to press. Across the table from the banks, senior note holders are threatening to take legal action that could impair lenders' recovery. "The banks who oppose the plan of reorganization may not have realized the weakness of their position," said one senior noteholder. "The unsecured creditors may well initiate litigation to attack the liens in Europe." Lenders seemed unfazed. "Frankly, I think they're bluffing," one lender said.
David Botter, an attorney at Akin, Gump, Strauss, Hauer & Feld, the firm representing the official committee of unsecured creditors, said legal action is an option. But he stressed that the current plan should work. "The committee believes that it could sue the banks with respect to certain liens," he said. "But the committee feels that the plan on the table represents a good settlement to that [dispute]."
Pieces of Hayes' bank debt traded in the 80-81 context up from the 76-79 range with the hope that lenders would receive more equity or cash. Votes to approve the Hayes' reorganization plan were originally due on March 28. After lenders failed to give their blessing, the company extended the deadline to gather votes from the holders of its pre-petition credit facility and holders of its synthetic facility to last Friday.
If the plan is not approved by the reset deadline, senior noteholders endorsing the plan may choose to go after the bank holders' security package. Hayes has assets both in Europe and North America, but the European assets make up more than half of the company's current value. Unsecured creditors claim that the bank lenders did not legally perfect their security interests specifically in one European subsidiary that was not a part of Hayes' current bankruptcy process (LMW, 12/23). If noteholders were to win this dispute, a portion of the bank debt would be made pari passu to the senior notes. That would compromise the recovery for bank debt holders.
Known senior noteholders include Apollo Management and Xerion Capital Partners. Calls to Apollo Management were not returned by press time. Officials from Xerion declined to comment. General Electric Capital Corp., Foothill Capital Corp, Citadel Limited Partnership and Sankaty Advisors, were among the lenders leading the charge for an alternative plan of reorganization that would bring lenders more recovery. "[Some bank debt holders] were not happy with the nature of the plan," said one lender, noting that the recovery package included a significant amount of equity. Calls to GECC, Foothill, Citadel, Sankaty and Hayes officials were not returned by press time.