MagnaChip committee files plan to be funded by rights offering

By Caroline Salls

Pittsburgh, Aug. 26 - MagnaChip Semiconductor Finance Co.'s official committee of unsecured creditors filed a competing plan of reorganization and related disclosure statement for the company's bankruptcy case Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

According to the disclosure statement, MagnaChip and its pre-bankruptcy lender agent filed a plan of liquidation on June 29 under which substantially all of the company's assets would be sold and the sale proceeds and available cash would be used to pay plan expenses.

The committee said it objected to the company's plan based on its belief that the total enterprise value of MagnaChip's estate and the assets of selling non-debtors justifies a return to general unsecured creditors far in excess of that provided under the company's plan.

Under the committee's plan, the company's operations would be reorganized and claims would be satisfied through the issuance of a new term loan to satisfy first-lien lender claims, the conversion of second-lien noteholder and subordinated note claims and an offering of $25 million of new common units.

Specifically, the committee will obtain exit financing for its plan by offering eligible second-lien noteholders a right to subscribe for $25 million of new common units in reorganized MagnaChip, representing 74% of the new units.

Avenue Capital Management II, LP has agreed to backstop the full amount of the proposed rights offering in exchange for 10% of the new common units.

Creditor treatment

Treatment of creditors under the committee's plan will include:

• Holders of administrative claims, tax claims and priority non-tax claims will recover 100% in cash;

• Other secured claims will be reinstated or holders will be paid in full in cash or through the return of the collateral securing the claim;

• Holders of first-lien lender claims will recover 100% through a share of a new term loan;

• Holders of second-lien noteholder claims will receive 5% of new common units in the reorganized company and will be entitled to participate in a rights offering;

• Holders of general unsecured claims will recover 10% in cash as a gift from holders of second-lien note claims;

• Holders of subordinated debt claims will receive 1% of new common units as a gift from the second-lien noteholders and warrants to purchase 5% of the new common units with a strike price equivalent to a $600 million total enterprise value;

• Intercompany claims will either be adjusted, released, waived or discharged on the plan effective date, contributed to the capital of the obligor or reinstated, at the option of the reorganized company; and

• Interest holders will receive no distribution.

A hearing on approval of the rights offering is scheduled for Sept. 2.

MagnaChip, a Sunnyvale, Calif.-based designer and manufacturer of analog and mixed-signal semiconductor products, filed for bankruptcy on June 12. Its Chapter 11 case number is 09-12008.

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