Spansion noteholders object to backstop rights purchase agreement

By Caroline Salls

Pittsburgh, Feb. 10 - Spansion Inc.'s informal committee of convertible noteholders objected to the company's plan of reorganization in connection with the backstop rights purchase agreement with Silver Lake Sumeru, LP, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.

Under what the committee called an "expensive and burdensome backstop arrangement," Sumeru has agreed to guarantee the financing of a $109.38 million portion of Spansion's exit from bankruptcy in exchange for "substantial compensation and a variety of protections."

However, the noteholders group said it made a $112.38 million equity financing proposal in January.

The price per share under the noteholders' proposal would be equal to the lesser of the price per share resulting from the implied equity value that is derived from an assumed total enterprise value of the reorganized company of $1.5 billion or, if the value confirmed by the court is less than $1.5 billion, an amount equal to the price per share resulting from the implied equity value that is derived from the total enterprise value confirmed by the court.

Even under the second scenario, the committee said its price per share would in no event be less than the price resulting from an assumed total enterprise value of $1.2 billion.

The committee said its proposal is significantly higher than Silver Lake's even at its lowest price.

"While, as a general proposition, the ad hoc committee does not object to the mechanism of a backstop commitment to fund exit obligations, the debtors entry into this particular backstop rights purchase agreement with Silver Lake is clearly the result of insider dealing, is not entirely fair and offends traditional notions of the sound exercise of business judgment," the noteholders said in the objection.

Confirmation hearing adjourned

Spansion's plan confirmation hearing is scheduled for Feb. 24. The hearing date was postponed on Wednesday from Feb. 11.

A motion filed by an informal group of senior noteholders for a standstill of the plan solicitation process will also now be held on Feb. 24.

Spansion, a Sunnyvale, Calif.-based maker of flash memory products, filed for bankruptcy on March 1, 2009. Its Chapter 11 case number is 09-10690.

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