Elpida's bondholders open new front in fight over Micron deal

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By Tom Hals and Nick Brown | September 17, 2012 11:14 PM EST

Frustrated by Japanese chipmaker Elpida Memory Inc's plan to sell itself out of bankruptcy in Tokyo for a perceived pittance, the company's U.S. bondholders are bringing the fight back home, turning to a Delaware court in hopes of wresting control of the case.

Holders of some of Elpida's $5.6 billion in bonds will argue at a hearing on Monday in U.S. Bankruptcy Court in Wilmington, Del., that Elpida's plan to sell itself to U.S. rival Micron Technology Inc for about $2.5 billion drastically undervalues the company.

Elpida in March had filed for so-called Chapter 15 protection in the Delaware court, a common move for companies restructuring outside of the United States. Chapter 15 allows U.S. courts to recognize a foreign bankruptcy as the main proceeding and block creditors from seizing the company's American assets.

But in court papers filed ahead of Monday's hearing, Elpida's bondholders made the unusual demand that Judge Christopher Sontchi take steps to protect their interests in Elpida's U.S. assets and declare that bondholders have the right to force Elpida's American subsidiary into bankruptcy in the United States.

Elpida, the last of Japan's dynamic random access memory, or DRAM, chipmakers, was driven into bankruptcy in Tokyo District Court by falling chip sales and foreign competition. In a bid to raise money to repay creditors, it has agreed to sell its business to Boise, Idaho-based Micron for $750 million in cash and $1.75 billion in deferred payments.

Buying Elpida, which supplies Apple Inc, would boost Micron into the number two spot behind Samsung Electronics in the global market for DRAM chips.

The bondholders, led by hedge funds Linden Advisors, Owl Creek Asset Management and Taconic Capital Advisors, have argued that Elpida is worth 300 billion yen ($3.78 billion), and they have gone on the offensive against what they see as a sweetheart deal with Micron.

The bondholders filed a reorganization plan for Elpida with the Tokyo court. A court-appointed committee is reviewing that plan, which would maintain Elpida as a standalone company, as well as the Micron sale plan. The committee is expected to decide this month whether one, neither or both of the plans will be sent to creditors for a vote.

In the meantime, the bondholders are stepping up the pressure in the U.S. Chapter 15 case by asking Sontchi to modify his April ruling recognizing the Japanese case as the main proceeding.

Dan Guyder, an attorney at law firm Allen & Overy who specializes in Chapter 15 bankruptcies, said he had never seen similar demands made against a foreign debtor and said it would be a notable development if Sontchi granted bondholders' demands.

Monday's hearing is not the last chance for bondholders. If the Micron sale is approved in the Tokyo court, Elpida will likely have to go before Judge Sontchi in Delaware to enforce the plan, Guyder said, at which time bondholders will have another shot at attacking the merits of the sale.

Attorneys for Elpida declined interview requests, as did lawyers for the bondholder group.

FAR FROM DEFERENTIAL

In general, U.S. bankruptcy judges handling Chapter 15 cases are meant to assist insolvency proceedings in a foreign country. They are not meant to assess how a restructuring would turn out in their court.

Chapter 15 has helped Japan Airlines Corp and German alternative energy company Solar Millennium AG, among others, overhaul their operations while protecting assets in the United States.

But far from deferring to the Japanese proceeding, Elpida's bondholders appear to see the Chapter 15 court as the strongest forum for making their voices heard.

In court filings in April, the bondholders said Japan restructuring proceedings lack the transparency of U.S. bankruptcy practices and do not give creditors as strong a voice as does the U.S. process.

The argument reflects a preference, relatively common among bankruptcy creditors, for U.S. bankruptcy courts, where creditors can form committees and an emphasis is placed on maximizing creditor payouts.

If the bondholders do have to fight Elpida's plan in Delaware, they have a recent ruling they can point to as precedent.

A U.S. bankruptcy judge in Dallas, Harlin Hale, in June refused to recognize the Mexican restructuring of glassmaker Vitro SAB, a decision now being challenged at the Fifth Circuit Court of Appeals next month in New Orleans.

Elpida's U.S. bondholders have seized on the Vitro decision as a precedent to challenge the Micron deal.

(Reporting by Tom Hals in Wilmington, Delaware and Nick Brown in New York; editing by Carol Bishopric)

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