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									VALCON 2010
 The Role of the Hypothetical Liquidation Analysis:
 How Will Approaches in the Auto Cases Affect General Restructuring Practices?

                                                                           Michael P. Richman
                                                                    Patton Boggs LLP, New York

                                                                                  Marc Abrams
                                                              Wilkie Farr & Gallagher, New York

                                                                                Peter Chadwick
                                                 Capstone Advisory Group, LLC, Washington, D.C.

                                                                               Adrian Frankum
                                                                  FTI Consulting, Inc., New York

                                                                                   Ted Stenger
                                                                     AlixPartners, LLP, New York
 The Role of the Hypothetical Liquidation Analysis:
 How Will Approaches in the Auto Cases Affect General Restructuring Practices?

                              Case Study:
                 The Chrysler LLC Restructuring
                             restructuring \ litigation \ valuation

The Chrysler Restructuring

February 25, 2010

Table of Contents

                    About the Speaker                                 3
                    Automotive Industry in Crisis                     5
                    Government Forced Secured Lenders to do a Deal
                       that Violates Bankruptcy Doctrine?            11
                    About Capstone                                   15
                    Appendix: Large Case Experience                  22
About the Speaker

About the Speakers

Peter Chadwick – Executive Director

   Peter Chadwick spent the past six years working with automotive companies and creditors, including Citation, Metaldyne,
    Dura, JL French, Intermet, Collins & Aikman, and Chrysler

    – These engagements have provided Peter with a unique perspective on the restructuring of automotive companies (and in
       some cases liquidating)

    – Spent five of the six years sitting across from Chrysler representatives negotiating accommodation agreements and
       financial support on behalf of suppliers

    – Spent the past year sitting on the same side as Chrysler in negotiating agreements with its supply base

   As the team leader on the Chrysler engagement, Peter managed the business planning process, the U.S. Treasury,
    Canadian EDC, and Fiat due diligence processes and implementation of the Supplier Program

    – Peter continues to manage the liquidation of Old Carco’s 21 properties and its emergence from bankruptcy

   Prior to joining Capstone, Mr. Chadwick worked as a restructuring advisor at Policano & Manzo and FTI Consulting

   Mr. Chadwick holds an MBA in finance from the Olin School of Business at Babson College and a BA from Pennsylvania
    State University, and is a Certified Insolvency Restructuring Advisor

Automotive Industry in Crisis
(Negotiating in the Shadow of

Automotive Industry in Crisis (Negotiating in the Shadow of Bankruptcy)

Historic Decline in Auto Sales – 2009 Lowest Level in 40 Years!

                                                                                       U.S. Auto Industry Sales History                                                                                    Cheap Credit sustains
                                                                                                                                                                                                           high level of demand
                                                         Typically a very cyclical industry
                                                                                                                                                                                                         18 18
                      18                                                                                                                                                                            17           17 17 17 17 17
                                                                                                                                       16                                                                                         17
                                                                                                                                  16             16                                            16
                      16                                                                         15                                         15                                 15 15   16 16
                                                                                            15                                                        15
                                                                        14                            14                     15                                           14
                      14                                           14                  13                                                                                                                                              14
   ( Units in Millions )

                                                              12                                                        12                                      13
                      12                         11 12                       12                            12
                                    11 11                                         11                            11 11
                               10                        10
                                            10                                                                                                                                                                                              10
                      10       ----- -------- ------------------------ ----------------------











Automotive Industry in Crisis (Negotiating in the Shadow of Bankruptcy)
                        Delinquency Rates                                                            Repossessions                                    Issuance of Auto
                                                                                               2.5                     $10.7       $10.8           Asset Backed Securities

                                                                    # of Repos (Millions)
              20%                                                                              2.0                                                             ($Billions)
                                                   15.9%                                                       $10.5               $10.6
                                                                                               1.5    $10.3                                  $1,224
Percent (%)

              15%                                                                                                                  $10.4
                                        11.6%                                                                                                                 $854
              10%                                                                                                                  $10.2
                         6.8%                                                                  0.5
                                                                                                       1.3      1.5       1.7
               5%                                                                              0.0                                 $10.0                                     $148
                                                                                                      2006     2007      2008
                         2006            2007       2008                                                                                         2006         2007           2008

                      Delinquency Rates are Soaring …                                       … and Increasing Repos Hurt Lenders …                  … which Shrinks Available Capital
                                                                                                                                                          for Auto Loans …

                 Auto Loan Interest Spread                                                  Auto Loan-% of Down Payment                          Chrysler Financial Consumer
                Over Commercial Paper Rate                                                                                                        Financing Approval Rates
                                Basis Points                                              100%
                                                             Percent of Purchased Price

              1,200                             1,100                                                    5%      Down                      80% 73%
              1,000         Retail                                                          95%
                                                                                                                Payment                    70%
                800                                                                                                         15%
                600                                    650                                  90%                                            60%
                400                                                                                                                        50%
                             130                                                            85%         95%
                200                                                                                                                        40%                                            34%
                                        28                                                                        Auto
                  0                                                                         80%                             85%
                                                                                                                 Loans                     30%
                             2007               2008
                                                                                            75%                                                   Dec   Feb    Apr   Jun     Aug    Oct   Dec   Jan
                                                                                                        2007                2008
                                                                                                                                                  '07   '08    '08    '08     '08   '08   '08   ‘09
                … Leading to Higher Borrowing Costs …                                       …and Higher Down Payment Requirements          … and therefore Credit Approval Rates are
                                                                                                                                            Down 25% Points from the End of 2007

                             … And Credit is Difficult To Secure For those Who Want To Purchase

Automotive Industry in Crisis (Negotiating in the Shadow of Bankruptcy)

Change in Operating Environment
   Automakers are paid immediately after vehicles are shipped from their plants (financial institution draft)
   Automakers typically have 45 – 50 days to pay suppliers for materials
   Therefore:

                    Normal Environment                                       Current Environment

                        Normal Environment                            Automaker
                                                                     Cash Balance
                                         Cash Balance

                                         Shipments             Production/

          Jan                                 Dec              Jan                                 Dec

                       A Total Of ~ $50B Cash Drain For The Detroit Three In 2008

Automotive Industry in Crisis (Negotiating in the Shadow of Bankruptcy)

Historic Decline in Auto Sales
   Dramatic drop in SAAR (Includes light, medium and heavy duty vehicles)

                                                              U.S. Auto Sales (SAAR)
                17.2 17.1                                                                       2007 CY:
                            16.7 16.6                             16.7                 16.6       16.5
           17                           16.4                             16.4
                                                           16.2                 16.1                                             Jan-Jun
                                                                                                                           Jan-Jun ‘08 ’08:
                                               15.9 15.8
           16    2007 CY                                                                      15.6 15.6                       15.0 15.0
                 Average est.
                 16.5M                                                                                           14.8                                      3Q ‘08:
           15                                                                                                           14.6
                                                                                                   2008 CY:                    13.9          13.9
           14                                                                                        13.2
                                                                                                                                                    12.8             2009 CY
           13                                                                                                                         12.6
                                640K units,                                                                                                                          est. 10.1M
           12                   approx. $15.5B in
                                lost revenue for                                                                                                           10.9
           11                   Chrysler                                                                                                                          10.5


Automotive Industry in Crisis (Negotiating in the Shadow of Bankruptcy)

November and December 2008

   The CEOs of the Detroit Three fail to obtain emergency funding from Congress

   This left Chrysler with a real conundrum as liquidity approached zero
    – Keep producing cars without knowing if credit will be available to purchase them
    – Needing to generate some liquidity to fund working capital drain and fixed cost burden
    – Chrysler was heading towards the precipice of liquidity crisis from which it likely could not emerge

Government Forced Secured
 Lenders to do a Deal that
   Violates Bankruptcy

Government Forced Secured Lenders to do a Deal that Violates Bankruptcy Doctrine?

Most Common Criticisms
   Lack of creditor consent
    – Administrative agent for secured lenders consented to sale
    – Remaining creditors did not oppose sale ultimately

   Sale violated absolute priority
    – Misstates creditors entitlement – entitlement is to the extent of collateral
    – $2 billion purchase price was paid to lenders
    – Remaining liened assets are liquidated to satisfy respective DIP/Secured Lender debt
    – New equity contributed new value

   Use of section 363 side stepped the bankruptcy process
    – Well-established law allows for emergency asset sales in a “melting ice cube” scenario
    – Even Indiana Pension Funds conceded this was a “melting ice cube”
    – Speed of process maximizes asset value as a going concern

Government Forced Secured Lenders to do a Deal that Violates Bankruptcy Doctrine?

                                                                               Satisfaction of Claims in Two Scenarios
Most Common Criticisms                                                                    Fiat Sale                     Liquidation
                                                         Proceeds             - $2 billion cash              - 31 plants and 12 properties
   Use of a liquidation value as basis for fair value                        - $200 million fund claims     estimated at
    – Liquidation estimates showed recoveries to                              - Time to orderly liquidate
                                                                              - 21 properties
      be a fraction of the sale value                                         - Dealer liabilities
    – Best deal available? – Alternative was                                  - Warranty liabilities
                                                                              - Supplier claims
      liquidation                                                             - Workers comp claims
    – Marketed company for 24 months to GM,              Recoveries
                                                         DIP Lenders          - Cash collateral               - Cash collateral
      Toyota, Volkswagen, Tata, GAZ, Magna,
                                                                              - 9 properties                  - less Surcharges
      Hyundai, Mitsubishi, Honda and 3 Chinese                                                                - 9 properties
    – No alternative financing
                                                         First Lien Lenders   - $2 billion                    - Est. $800 million
    – 60-day DIP expiring in June                                             - 12 properties
                                                                              - Certain vehicles
    – Fiat drop-dead date June 15
                                                         Secured Taxes        - Satisfied in full due to      - Compromised due to value
                                                                              funding by DIP                  of collateral
   In fact: Government threats to end funding and
    force bankruptcy resulted in:                        Admin Costs          - Paid in full, including       - Pre-sale costs compromised
                                                                              503(b)9 claims                  - Some Chpt 7 costs require
    – A realistic review of the Company’s outlook                                                             approval to surcharge secured
    – Genuine viability analysis                                                                              collateral

    – Creation of a structure that emphasizes            Priority             - Paid in full                  - No funds available
       minimization of damage

Government Forced Secured Lenders to do a Deal that Violates Bankruptcy Doctrine?

Sale Provided Critical Test for GM

About Capstone

About Capstone
Capstone Advisory Group, LLC is a leader in providing multidisciplinary services and
solutions to lenders, companies, and investors through its core practice areas:
        Restructuring and Transaction                Litigation and Forensic
                                                                                                 Valuation Services
              Advisory Services                              Services

   130+ senior professionals including turnaround experts, forensic investigators, and valuation and insolvency experts

    – Senior professionals average over 20 years of experience

    – Many are former COOs, CFOs, controllers, and have certifications in valuation, accounting, fraud examination, etc.

   Capstone professionals have collectively worked on over 900 matters involving both small and Fortune 500 companies

    – Experience extends to companies with revenues of less than $100 million to over $10 billion and complex capital

   Experience advising all constituencies affords us an in-depth understanding of the issues and provides the background to
    build consensus

    – Capstone has advised on numerous cases where adverse conditions necessitated operational and/or financial
      turnarounds, debt refinances and/or capital raises

    – This enables us to quickly understand and predict the concerns, requirements, and actions of constituents

Built on Experience, Leading with Excellence

About Capstone
Restructuring and Transaction Advisory Services
Companies that are restructuring, involved in a merger or acquisition, or considering a new loan or investment turn to Capstone
for the expert knowledge and resources that will help evaluate the undertaking, and maneuver effectively through the process

           Restructuring Services                  Transaction Advisory Services                       Fiduciary Services
    Strategies to Conserve Liquidity;                Integrity of Business Plans and       Bringing and Resolving Avoidance and Other
     Implementing Cash Management and                  Cash Flow Projections                  Causes of Action
     Forecasting                                      Quality of Earnings and Control       Pursuing Recoveries of Contingent Assets,
    Strategic and Business Planning; Financial        Environment                            such as Insurance, Credit Cards and Tax
     Modeling                                                                                 Refunds; Converting Assets to Cash (i.e.,
                                                      Management and Managerial
    Profit Improvement and Cost Rationalization                                              Real Estate, Securities, International Assets)
    Analysis and Negotiation of Restructuring                                               Claims Management Administration and
                                                      Obstacles to Growth                    Resolution
                                                      Synergy and Shutdown Analysis         Managing Trust Registries and Distributions
    Bankruptcy Planning and Process
                                                      Design and Implementation of           to Creditors
                                                       Integration Plans                     Accounting, Reporting and Compliance,
    Interim and Crisis Management, Including
                                                      Accounting Policy Issues               Including Tax Returns
                                                                                             Interacting with Stakeholders; Providing
    Negotiating Debtor-in-Possession, Bridge,        Debt Capacity and Capital
                                                                                              Informational Reporting and Projected
     and Exit Financing                                Structure
    Expert Testimony                                 Compliance Reviews                    Identifying Key Debtor Personnel to Wind
    Developing Key Employee Compensation             Business Valuation Services            Down the Business
     Programs                                         Post-Closing Transaction Support      Managing Orderly Wind Down of a Business
    Monitoring Financial Performance and              Related to Adjustments and             or Trust Within Budget Guidelines
     Collateral                                        Disputes                              Interacting as Appropriate with Bankruptcy
    Going-Concern and Liquidation Valuations         Transition Services Agreements         Court and U.S. Trustee

About Capstone
Litigation and Forensic Services
Capstone has been instrumental in resolving hundreds of disputes, both in and out of court, putting our professional
consulting, expert litigation and forensic services to work for our clients
    Our credentialed professionals include:
                                                                                         Typical Litigation and Forensic Services
     – Certified Public Accountants              – Forensic accountants
     – Certified Fraud Examiners                 – Valuation experts                        Complex Commercial Litigation
                                                                                            Arbitration, Mediation and Dispute Resolution
    Our services include:
                                                                                            Bankruptcy Avoidance Actions and Analysis
     – Development of litigation issues and strategies                                      Damages Claims Preparation and
     – Assessment of alternatives                                                            Assessment
     – Damages assessments                                                                  Analysis of Relationship Between Events and
     – Creation and challenge of claims
                                                                                            Construction Damages Analysis
     – Evaluation of strengths/weaknesses of litigation positions                           Project Reconstruction and Job History
     – Comprehensive financial discovery and analyses                                        Analysis
    We have successfully testified in both state and federal courts, in numerous           Internal Investigations
     disciplines, and on diverse issues                                                     SEC Matters
                                                                                            Purchase Price Disputes
     – Meticulously-prepared, expertly-executed testimony
                                                                                            Critique of Reports by Other Experts
     – Credible, verifiable information that stands up to the most rigorous scrutiny        Analysis of Leveraged Transactions,
    We have advised on and achieved success in the following areas:                         Solvency
     – Claims and litigation in intellectual property matters; construction claims;         and Insolvency
        surety claims; lost profits; product liability; fraud; accounting malpractice;      Business Fraud Investigations
        solvency; breach of contract; breach of fiduciary duty; purchase price and          Third-Party Inspections
        other contract disputes

About Capstone
Valuation Services
Due to the specialized nature of this work, Capstone established a discrete entity, Capstone Valuation Services, LLC, in 2006
and staffed it with senior accredited valuation professionals
    Valuations are critical to the strategic decisions in managing or                       Typical Valuation Services
     evaluating a business, and are rigorously examined by investors,
     lenders, boards of directors, corporate advisors, and regulatory                  Financial/Accounting/Tax
                                                                                        – Valuations – Fair Value & Fair Market Value
     agencies, including the IRS and SEC
                                                                                        – Purchase Price Allocation
    Capstone’s valuation experts have performed thousands of business and              – Goodwill and Asset Impairment Testing
     intellectual property valuations in the last decade, and bring tested, real-       – Transfer Pricing
     world experience to bear in providing opinions of value where your                 – International and Domestic Holding
     business enterprises, interests, noncore assets and liabilities are                    Companies
                                                                                       Litigation and Arbitration Support
                                                                                        – Expert Reports and Testimony
     – We help eliminate the controversy and inject the credibility and                 – Settlement Analysis
       confidence that are paramount in moving forward                                  – Tax Controversies
                                                                                       Tactical/Strategic
    Specialists in going-concern, liquidation, fair value, tax and intellectual        – Joint Venture and Alliance
     property valuations, Capstone provides thorough, defensible valuation                  Contributions/Breakups
     reports and expert testimony                                                       – Intellectual Property Portfolio Assessment
    Not only do we have broad industry coverage; we specialize in knowing              – License Program Development
                                                                                       Transactional
     the market conditions critical to valuing equities, derivatives, fixed
                                                                                        – Set Value Expectations
     income and intangible assets                                                       – Buyer/Seller Identification
    We take time to understand and evaluate your underlying business and               – Buy/Sell-Side Transactions
     industry, then present comprehensive conclusions based on research                 – Negotiation Support
     and backed by years of experience                                                  – Due Diligence

About Capstone
The business landscape continues to change and present new and complex challenges. Volatile economic conditions, ever-
advancing technology, growing international competition, failed growth strategies, and other major issues like fraud and mega-
litigation can dramatically affect a company and its stakeholders

Critical to success is the unbiased counsel of experienced professionals who can navigate through it all. Capstone Advisory
Group, LLC is a leader in providing multidisciplinary services and solutions to lenders, companies and investors

The Capstone Difference                                            The Capstone Approach

 Big-Firm Expertise with a Boutique Personal Touch                     Full Service Attention to Every Unique Need
    Capstone has led the resolution process in some of the               We partner each client with a select and qualified team
     most complex corporate domestic and international                     whose background best serves their specific challenges
                                                                          We quickly determine, investigate and understand the
    Our broad experience and superior service, coupled with               core issues and factors at hand so we can get the facts,
     our personal, hands-on approach, have benefited                       take positions, and give straight answers
     hundreds of clients — from small businesses to Fortune
     500 companies, in a wide array of industries                         We conduct in-depth analysis to assess strengths and
                                                                           weaknesses, identify opportunities and risks, understand
    What truly sets us apart beyond the exceptional
                                                                           the big picture, and maintain a global view with an eye for
     knowledge and results we bring to our clients, and the
                                                                           the details
     strong leadership position and track record we hold in our
     industry, is our greatest asset: a top-tier team of senior           We communicate, early and often, to keep clients
     professionals who are at the forefront of their respective            informed and processes streamlined
                                                                          We have forged long-term relationships with loyal clients,
    These professionals are completely committed to meeting
                                                                           a testament to our success
     the needs of each client


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Appendix: Large Case

Appendix: Large Case Experience

Selected Large Case Experience

                                                    Financial Advisor to
       Financial Advisor     Financial Advisor to      the Unsecured       Financial Advisor to   Financial Advisor to
       to the Company            the Lenders        Creditors’ Committee       the Lenders            the Lenders

                                                                           Financial Advisor to
      Financial Advisor to   Financial Advisor to   Financial Advisor to                          Financial Advisor to
                                                                              the Unsecured
          the Lenders            the Lenders            the Lenders                                   the Lenders
                                                                           Creditors’ Committee

       Financial Advisor     Financial Advisor to   Financial Advisor to   Financial Advisor to   Financial Advisor to
       to the Company          the U.S. Trustee         the Lenders            the Lenders            the Lenders

Appendix: Large Case Experience

Selected Large Case Experience (cont’d)

                              Financial Advisor to                                                 Financial Advisor to
       Financial Advisor to                          Financial Advisor to   Financial Advisor to
                                 the Unsecured                                                     the Various Project
           the Lenders                                   the Lenders            the Lenders
                              Creditors’ Committee                                                      Lenders

       Financial Advisor to   Financial Advisor to   Financial Advisor to   Financial Advisor to   Financial Advisor to
           the Lenders            the Lenders            the Lenders            the Lenders            the Lenders

       Financial Advisor to   Financial Advisor to   Financial Advisor to   Financial Advisor to   Financial Advisor to
           the Lenders            the Lenders            the Lenders            the Lenders            the Lenders

Appendix: Large Case Experience

Selected Large Case Experience (cont’d)

      Financial Advisor to                            Financial Advisor to                          Financial Advisor to
                              Financial Advisor to                           Financial Advisor to
         the Unsecured                               the Interim CEO and                               the Unsecured
                                  the Lenders                                    the Lenders
      Creditors’ Committee                             Board of Directors                           Creditors’ Committee

      Financial Advisor to                                                   Financial Advisor to
                              Financial Advisor to   Financial Advisor to                           Financial Advisor to
         the Unsecured                                                          the Unsecured
                                  the Lenders            the Lenders                                    the Lenders
      Creditors’ Committee                                                   Creditors’ Committee

                                 United Companies

       Financial Advisor to   Financial Advisor to   Financial Advisor to    Financial Advisor to   Financial Advisor to
           the Lenders            the Lenders            the Lenders             the Lenders            the Lenders

 The Role of the Hypothetical Liquidation Analysis:
 How Will Approaches in the Auto Cases Affect General Restructuring Practices?

                               Case Study:
              The Delphi Corporation Restructuring
Delphi Background
 •   Delphi filed for bankruptcy on October 8, 2005 with significant legacy liabilities, a number of
     non-core businesses, uncompetitive labor agreements and a host of other issues. At the time,
     Delphi had a significant liquidity.
 •   During its chapter 11 process, Delphi actively engaged in the process of restructuring its
     operations and successfully:
      •   Maintained its customer and supplier relationships;
      •   Negotiated competitive labor agreements with its unions;
      •   Came to an agreement with GM;
      •   Wound-down or divested various businesses; and,
      •   Achieved all other aspects of the Transformation Plan that it set forth upon its filing for chapter 11.

 •   In April 2008, following the confirmation of its Plan of Reorganization, Delphi was prepared to
     emerge when its plan sponsors decided not to consummate the deal.
 •   For the next couple of quarters, Delphi was able to maintain its operations, in part through
     renegotiations with GM, while searching for a path to emergence.
 •   Then the world changed:
      •   The credit markets completely dried up
      •   The stock market plummeted
      •   Major financial institutions failed or needed rescue
      •   A global recession took hold and many predicted a depression would follow

Delphi Background
 •   At the same time, the automotive industry experienced an unprecedented decline:
      •   Volumes dropped to approximately 50% of recent historical levels
      •   Automotive companies fell completely out of favor with the markets
      •   Numerous bankruptcy filings and liquidations occurred in the sector, including major OEMs such as Chrysler and
      •   Extensive and previously unheard of governmental intervention occurred
 •   In the first half of 2009, these factors combined to put Delphi into a crisis:
      •   Liquidity was extremely tight. The Company was burning in excess of $100 million a month. The ability to
          continue operations was being measured in weeks.
      •   Financing options were ultimately limited to the U.S. Government /GM and the DIP lenders
            •   Delphi requested and was denied emergence capital from:
                  •   The unsecured bondholders
                  •   The DIP lenders
                  •   GM and the U.S. Treasury
            •   The DIP Lenders were unwilling to extend exit financing to Delphi when the recovery offered on their DIP
                debt was below par value.
            •   The Auto Task Force stated that it was unwilling to allow GM provide additional liquidity to Delphi outside of
                the context of a global resolution.
            •   The U.S. Government further strained Delphi’s liquidity when it prevented GM from purchasing one of
                Delphi’s divisions, which would have yielded material incremental cash.
      •   Delphi was placed on new business hold with almost all of its customers, further deteriorating the business.
Role of the Hypothetical Liquidation Analysis
 •   The Hypothetical Liquidation Analysis (“HLA”) played a more active role in the Delphi (and
     other automotive cases) than it traditionally is relegated to.
 •   Confirmation of a Plan under Chapter 11 requires that the proponent show that each holder of
     a pre-petition claim or interest of such class will receive or retain under the plan on account of
     such claim or interest property of a value, as of the effective date of the plan, that is not less
     than the amount that such holder would so receive or retain if the debtor were liquidated under
     chapter 7 (the “Best Interest Test”).
 •   In auto cases, the Executive Branch wielded extraordinary influence and effective control as
     the sole allocator of emergence capital and the picker of the winners and losers in a
     government sponsored rescue of an entire industry. Arguably, acting in this role, the
     Executive Branch distorted the dynamic tensions that exist in more traditional bankruptcy
     contexts by (a) seeking to convert the recovery floor (Best Interest) into the recovery ceiling
     and (b) neutering the role of the DIP.
      • Government argued that it had the ability to lend to the auto manufacturers, but did not
        have to, and would allow Delphi to liquidate unless the deal met its terms
      • Clear that government was not going to allow GM fail (though Chrysler was a closer call),
        but courts presiding over the OEM cases held that the respective company board of
        directors were exercising business judgment by accepting government’s terms rather than
        face threat of liquidation
      • The Delphi creditors fared better than the creditors in GM and Chrysler because they were
        senior secured DIP Lenders with consent and foreclosure rights that partially re-leveled
        the playing field, ultimately preventing unilateral imposition of a government backed plan.
The Hypothetical Liquidation Analysis
 •   In 2009, Delphi provided the DIP Lenders with a HLA that demonstrated a recovery to the
     $2.9B DIP C tranche of between 5% and 36% in a chapter 7 liquidation.
 •   Delphi further informed United States Treasury and the DIP lenders that it was prepared to
     recommend that its board approve a GM/private equity transaction that provided the C tranche
     with recoveries around the midpoint of that range.
 •   This HLA was eventually filed as an exhibit to Delphi’s Modified Plan of Reorganization which
     sought approval for a private sale of assets to GM and a private equity partner.

 General Perspectives
            DIP Lenders’ Perspective                                              Delphi Perspective
     •   Management was desperate to get out of                     •   The HLA represented management and its
         chapter 11 and was not willing to take the                     advisors’ best estimate of what would happen in a
                                                                        chapter 7 liquidation of Delphi where there was no
         necessary steps to obtain sufficient
                                                                        source of additional funding.
         recovery for the DIP Lenders.
                                                                    •   The HLA reflected the dramatic changes to the
     •   The HLA was clearly manipulated to an                          macro economic environment, automotive industry
         inappropriately low value in order to obtain                   and Company that had taken place.
         government support of an emergence plan                    •   Management had a fiduciary duty to maximize the
         and was inconsistent in methodology with                       value of the estate and pursued the path to do this.
                                                                        The DIP Lenders could always have foreclosed if
         previously filed versions.                                     they felt that they had a better alternative.
               •   HLA recovery values for the tranche C lenders    •   The government made it abundantly clear that it
                   coincidentally equaled the market value of the
                   tranche C debt                                       would not allow GM to provide further funding
                                                                        absent a complete resolution with GM and that it
     •   By successfully challenging a private sale                     was prepared to fund GM for the costs necessary to
         and opening up the process to                                  resource away from Delphi.
         competition, the DIP Lenders were able to                  •   The DIP Lenders ultimately agreed to a transaction
         expose the failings of the HLA and credit                      that was strangely similar to that proposed by
                                                                        management in early 2009. The DIP Lenders only
         bid their claims via collective action.
                                                                        took action after there was a “crisis.”
     •   The Delphi Board did not meet its fiduciary
         responsibilities by seeking to confirm a
         plan that vastly shortchanged the DIP
         Lenders and contained elements that
33       advantaged the board members
 Controversy Related to the HLA – Key Issues
            DIP Lenders’ Perspective                                   Delphi Perspective
     •   The HLA did not reflect the realities of     • The circumstances surrounding the Delphi case
         other auto supply cases, in particular Ford-   were far different than those that influenced the
                                                        cited auto supply cases.
         Visteon, Plastech Engineered Products
         and Collins and Aikman
                                                         •   This is a good sound bite, but patently untrue. The
     •   The HLA was premised on a “cold                     HLA did not reflect a “cold shutdown” but reflected
         shutdown” of Delphi, which was utterly              the fact that customers would not compensate
         unsupportable given historical precedents           Delphi for costs beyond those incurred to allow
         in the automotive sector and GM’s need              them to resource.
         for parts.
                                                         •   The valuation of the foreign operations of Delphi
                                                             would have been severely compromised by a
                                                             chapter 7 liquidation of the U.S. business.
     •   The HLA did not ascribe value to Delphi’s
         foreign operations - arguably the most
         valuable portion of Delphi.

 Controversy Related to the Alternative Liquidation Analyses
 (“ALAs”) – Key Issues
                Delphi Perspective                               DIP Lender Perspective
     •   The DIP Lender ALAs were upwardly            •   The ALAs reflected a more reasonable approach to
         biased to demonstrate greater recoveries         the liquidation of Delphi and was based on historical
                                                          precedent in the industry.
         than could possibly be obtained under the
         circumstances. The ALAs reflected an
         unrealistic scenario that would be
         extremely difficult, if not impossible, to
         execute.                                     •   The ALAs assumed that GM and, by extension, the
                                                          U.S. Treasury, would act in a manner that is rational
     •   The ALA was premised on support from             and consistent with their self-interest.
         the U.S. Treasury/GM both in terms of
         funding and the purchase of assets that      •   Delphi was the single largest employer in Mexico
         simply did not exist.                            and was already negotiating for a loan from the
                                                          Mexican government.
     •   The ALA also assumed that other, thus far
         non-existent, sources of funding would be
         available, including a $200 million loan
         from the Mexican government and other,
         undefined sources of capital in the event
         that the wind-down did not go as planned.


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