2007 Winter Leadership Conference Committee Agenda
ABI’s 19th Annual Winter Leadership Conference, which will be held Dec. 6-8, 2007 at the Westin Mission Hills Resort in Rancho Mirage, Calif., will feature two panels that will discuss hedge funds’ involvement in bankruptcy cases.
The committee meeting will be jointly held with the Investment Banking, Financial Advisors and Professional Compensation committees, on Friday, Dec. 7 from 9:30-11:00 a.m. The first panel is titled “Hedge Fund Competition for Control of Public Chapter 11 Debtors and Their Reorganizations (Or, Perhaps More Currently Stated, Will the Fed Keep the Ball in Play?).”
The second panel, entitled “Loan-to-Own Strategies of Hedge Funds and Private Equity Firms,” will convene immediately following a 15-minute intermission.
Hedge Fund Competition for Control of Public Chapter 11 Debtors and Their Reorganizations (Or, Perhaps More Currently Stated, Will the Fed Keep the Ball in Play?)
H. Slayton Dabney, Jr. – King & Spalding LLP; New York
James Decker – Alvarez and Marsal; Atlanta
Peter M. Gilhuly – Latham & Watkins LLP; Los Angeles
M. Steven Liff – Sun Capital Partners; Los Angeles
Loan-to-Own Strategies of Hedge Funds and Private Equity Firms
Stephen S. Gray – CRG Partners; Boston
Paul Coughlin – Longroad Asset Management, LLC; Stamford, Conn.
Hon. Allan L. Gropper – U.S. Bankruptcy Court (S.D.N.Y.)
Larry G. Halperin – Richards Kibbe & Orbe LLP; New York
Aziz Hassanali – Anchorage Advisors, LLC; New York
Andrew I. Silfen – Arent Fox LLP; New York
The first panel will discuss issues relating to the prevalence of hedge funds competing for control of and/or substantial ownership of public chapter 11 debtors and their reorganizations. The objective is to have a lively discussion about what is going on in this industry and explore the give and take that has occurred in notable recent cases. If there is to be a down cycle in the near future, surely the control struggles will continue as financially capable hedge funds and other investors attempt to capture their prey.
While some hedge funds participate minimally in chapter 11 cases by simply trading securities, hedge funds have become increasingly prominent players in large chapter 11 cases and are seeking to control cases and the debtors themselves in many instances. The panel will focus on hedge funds exerting significant influence over the outcome of chapter 11 cases by trading the debtor’s securities through pre-petition agreements, debtor-in-possession lending, buying control positions in the debtor and/or ultimately seeking to control and own the debtor through the chapter 11 process. Such strategies are evident in the following cases:
• In re Delphi Corp., et al., Bankr. S.D.N.Y. 05-44481 (RDD). A group of investors originally led by Cerberus and subsequently led by Appaloosa proposed an equity exit investment and plan framework for Delphi. At that same time, Highland sought to provide exit financing for Delphi. The court ultimately approved Delphi’s agreement with Appaloosa.
• In re Dana Corp., et al., Bankr. S.D.N.Y. 06-10354 (BRL). The court has approved a deal among Dana, its workers and Centerbridge, which provides, among other things, for Centerbridge to invest up to $500 million in Dana stock to fund the deal. The court approved this agreement over the objections of Appaloosa, Dana’s largest stakeholder, which sought to fund the deal itself and claimed that the discount Centerbridge got on Dana’s stock rendered the deal unfair. Appaloosa has recently appealed the court’s decision to the district court.
Business Issues
Confidentiality Agreements. The panel will explore various issues relating to confidentiality agreements, including why such agreements are put in place, how to determine when parties should enter into a confidentiality agreement and the impact of not entering into such an agreement when a hedge fund seeks to control a company. The panel will also discuss the tension for a hedge fund between entering into a confidentiality agreement with a target company and foregoing the right to trade in the target’s stock.
Strategies. The strategies of hedge funds vary dramatically. The panel will address the ways in which hedge funds find targets to invest in, as well as trading strategies and positions that hedge funds take. The panel will discuss the role of pre-petition lending and debtor-in-possession lending. It will also discuss the balance of risk vs. reward in trading distressed debt and stock. The panel will also identify related tactics, including litigation.
Objectives. Hedge funds commonly seek to control the companies whose stock and/or debt they acquire, but the panel will also explore other objectives, including attempts to take public, privatize, break-up or sell the equity of the target company. Hedge funds attempt to achieve these goals through various arrangements, including those providing for the right to elect board members.
Fiduciary Duties. When hedge funds compete to control a target company, the directors and officers of the target should be aware of the duties it has, including fiduciary duties of care, loyalty and good faith. The panel will explore the nature and extent of these fiduciary duties in the context of choosing the “best” offer for the company, as well as discuss the effect of conflicts of interest.
Requirements. The panel will explore certain reporting requirements, including those of the SEC, that hedge funds and target companies have when a hedge fund seeks to obtain a control position in a public company.
Determinative Factors. Ultimately, in the case of two hedge funds competing to control a target company, one hedge fund (or group of funds) usually prevails over another hedge fund (or group of funds). The panel will discuss what factors determine which hedge fund (or group of funds) prevails and the import of such factors, including how each fund attempts to gain management approval.
Legal Issues
The panel will address various provisions of the Bankruptcy Code relating to disclosure requirements and confirmation of a plan of reorganization with which every hedge fund, banking and legal professional should be familiar, including:
Bankruptcy Rule 2019. Bankruptcy Rule 2019 requires, among other things, that every entity or committee representing more than one creditor or equity securityholder file a verified statement that includes the amounts of claims or interests owned, the times when acquired, the amounts paid therefore and any sales or other disposition thereof.
Safe Harbor Provision. Section 1125(e) of the Bankruptcy Code provides that a person that solicits acceptances or rejections of a plan or that participates in the offer, issuance, sale or purchase of a security of the debtor, affiliate participating in a joint plan with the debtor, or a newly organized successor of the debtor, is not liable on account of such solicitation or participation for violation of any applicable law, rule or regulation governing solicitation of acceptance or rejection of a plan or the offer, issuance, sale or purchase of securities.
Good Faith Provision. Section 1126(e) of the Bankruptcy Code permits the court to disqualify any acceptance or rejection that was not made in good faith or which was not solicited in good faith or in accordance with the Bankruptcy Code.
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Please note that the topics of discussion set forth herein, the panelists and the schedule are subject to change.