Dura Automotive Systems has won court approval to sign California hedge fund Pacificor to “backstop” a deal to raise $US140m to $160m in new equity to help it out of bankruptcy.
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Dura, which filed for Chapter 11 protection in October 2006, said on 2 August it had filed a backstop rights purchase agreement, which provides “for certain backstop commitments”.
The agreement is based upon a term sheet originally filed with the US bankruptcy court on 12 July as part of a motion requesting the court approve the backstop rights purchase agreement and certain associated fees.
Dura said then that, under the terms of the agreement, Pacificor, one of Dura’s senior noteholders, would underwrite 100% of the backstop commitment.
Roger Higgins, a lawyer for the bankrupt parts maker, told the Associated Press (AP) following the 15 August hearing that Dura would file a Chapter 11 plan in “a matter of days” after winning permission to move ahead with the plan to sell new shares in the reorganised company.
According to the news agency, Dura’s draft Chapter 11 plan leaves existing shareholders out in the cold and wipes out about $600m in subordinated debt and convertible trust preferred securities.
Bankruptcy judge Kevin Carey reportedly overruled objections from holders of the jeopardised debt securities who said Dura should sell itself outright instead of selling equity. The judge’s decision cleared the way for Dura to sign a deal that positions Pacificor to own as much as 60% of the supplier, AP noted.
According to the Associated Press, Dura said its arrangement with the Santa Barbara, California, hedge fund is just insurance to make sure the reorganised company shares won’t go unsold.
Objecting creditors were reported to have said Dura’s plan amounts to a sale of control of the company to Pacificor.
The deal just approved allows the hedge fund to transform the public company into private property, while resisting inquiries about its financial ability to handle its obligations as an underwriter, creditors’ lawyers told the news agency.
Higgins told AP that Dura won’t say until shortly before its plan is ready for confirmation who will get to buy new shares once the company is out of bankruptcy.
The cash infusion from the equity rights offering, an expected $140m to $160m, is a key element in Dura’s struggle to right itself financially, the lawyer reportedly said.
