Elpida holders look to modify recognition order amid sale concerns

By Caroline Salls

Pittsburgh, Aug. 13 - The steering committee for an informal group of Elpida Memory, Inc. bondholders is asking the U.S. Bankruptcy Court for the District of Delaware to modify its order recognizing the company's Japanese proceeding in the United States, according to a Friday court filing.

The steering committee is asking the court to place conditions on the relief granted in the recognition order by requiring protections on all property of Elpida's estate within the territorial jurisdiction of the United States.

Under these conditions, the committee said that Elpida would be required to file a schedule listing the nature, amount and location of its U.S. assets and provide periodic written status reports on its intent to transfer, transfer control of, or otherwise dispose of any U.S. assets.

Also under the proposed conditions, Elpida could not transfer or transfer control of the assets or sell the assets without 30-day written notice to the court and parties in interest.

In addition, the committee is asking the court to clarify that the automatic stay imposed by the recognition order does not prevent the bondholders from filing an involuntary Chapter 11 bankruptcy case against Elpida, if necessary.

The steering committee said that significant concerns have arisen following entry of the recognition order in April as to whether Elpida is attempting to maximize the value of its estate and recoveries to its pre-bankruptcy creditors.

Specifically, the committee said Elpida announced on July 2 that it had entered into a sponsorship agreement under which it will sell its stock to Micron Technology, Inc.

"That stock sale will be made free and clear of all of Elpida' s prepetition liabilities, and prepetition creditors will receive cash and new paper issued by the reorganized entity, which the bondholders anticipate will be worth less than $1.8 billion," the committee said in the motion.

No disclosure

Despite the drastic consequences of the proposed sale on Elpida's secured and unsecured creditors, the steering committee said that virtually no disclosures have been made regarding the fair market value of Elpida and its subsidiaries, the terms of the proposed sale or the range of post-sale recoveries to Elpida creditors.

"The unwillingness of Elpida, its court-appointed trustees and Micron to discuss material aspects of their proposed arrangement creates significant concern for any Elpida creditor," the committee said.

"The minimal information that the bondholders have obtained to date, including a highly redacted version of the sponsorship agreement, raises serious red flags regarding the substantive propriety of the proposed sale."

Micron deal concerns

The committee said these concerns include the following:

• Elpida's two court-appointed trustees effectively precluded themselves by the terms of the sponsorship agreement from discussing any alternate transactions or disclosing material information without Micron's consent;

• No other creditor representative with any meaningful power and with fiduciary duties owed to creditors participated in, or signed off on, Elpida's sale decision;

• No transparent or stalking-horse bid process has taken place or is scheduled to take place, and the trustees have repeatedly rebuffed the bondholders' attempts to discuss creditor-led initiatives to provide substantially more value to Elpida's creditors and estate.

The bondholders said they are willing to "put their money where their mouths are," but neither they nor any other creditor are being given access to Elpida's most basic financial information;

• The total headline consideration for the proposed sale is 200 billion yen, comprised of an upfront cash payment of 60 billion yen and 140 billion yen to be paid out of future revenue streams generated by a portion of Elpida's reorganized business.

Even assuming that Micron intends to cause the installment payments to be made in full on the scheduled dates, the steering committee said the net present value of the proposed sale discounted using the weighted average cost of capital of Micron, would not exceed $1.8 billion, or 143 billion yen; and

• The 143 billion yen present value of the proposed sale is a best case view of the transaction, yet the value appears to be substantially less than Elpida's liquidation value.

The bondholders said that the order modification motion "is occasioned out of a mounting concern that the proposed sale may turn out to be an illegitimate transfer of enterprise value from old equity to new equity at the expense of existing creditors, without any protections of a fair, open or rational sale and reorganization process."

A hearing is scheduled for Sept. 6.

Elpida, a Tokyo-based manufacturer of DRAM integrated circuits, filed for bankruptcy on March 19 to gain recognition of its Japanese proceedings. Its Chapter 15 case number is 12-10947.

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