Dura's 9% noteholders, U.S. Trustee object to company's reorganization plan

By Reshmi Basu

New York, Nov. 13 - Dura Automotive Systems, Inc.'s 9% noteholders and the U.S. Trustee asked the court to rule against the company's plan of reorganization because it unfairly discriminates against certain creditors.

Under the plan, the 9% noteholders could potentially receive nothing while control of the company is handed over to a private equity firm and to Dura's management, the noteholders said in a Tuesday filing with the U.S. Bankruptcy Court for the District of Delaware.

According to the reorganization plan, private equity firm Pacificor LLC will backstop the issuance of new stock, in which it will pay between $140 million to $160 million to the company.

In return, the Santa Barbara, Calif.-based firm will receive 42.4% of the new stock while management will get 10% of the distribution shares under the management equity program, even though the 9% noteholders will most likely miss out on any sort of recovery.

The sole distribution to unsecured creditors is new common stock, and furthermore, bigger noteholders will have a chance to play in a rights offering to buy more stock.

The 9% noteholders, however, are excluded from the rights offering. In addition, the pro rata share of new common stock that would have been distributed to them will now land in the laps of senior noteholders, according to the objection.

"By excluding the 9% noteholders and the general unsecured creditors from the rights offering, the plan unfairly discriminates," the noteholders argued in the court document, adding that distributions to the class should not be subordinated to senior noteholders.

Moreover, the plan is not feasible because it is premised on the ability of Pacificor to backstop the issuance of new stock and the success of the plan hinges on Dura's ability to obtain a $425 million exit facility.

However, the company has not demonstrated that Pacificor can fulfill its obligation nor has it shown that it can obtain the facility.

The 9% noteholders own $88 million of the 9% senior subordinated paper due May 2009. They voted against the plan.

U.S. Trustee objects to plan

Meanwhile in a separate objection, the U.S Trustee criticized the plan because it creates a classification scheme, which discriminates against smaller holders of senior notes.

Those noteholders who own more than $75,000 of Dura's senior paper will be able to participate in the rights offering. Those holders who fall below $75,000 are out of luck.

The disparate treatment makes the plan unconfirmable, the trustee said in the court document.

Furthermore, the plan contains overbroad and impermissible release and exculpation provisions, the trustee said.

"The release provisions provide broad releases for numerous entities for both pre-petition and post-petition conduct, which have no identity of interest with the debtors and which have made no contribution to the plan," the trustee noted in the objection.

In addition, the trustee criticized the plan's call for consolidation, noting that the company has not shown that the many of the entities' assets and liabilities are scrambled.

The confirmation hearing is scheduled for Dec. 6.

Dura, a Rochester Hills, Mich.-based automotive parts maker, filed for bankruptcy on Oct. 30, 2006. Its Chapter 11 case number is 06-11202.

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