UPDATE 2-Visteon to exit bankruptcy in hands of hedge funds

* Auto parts maker cleared to exit bankruptcy

* Visteon's revival caps industry-wide restructuring

* Hedge funds to control revived company (Adds details and background; new from paragraph two)

By Tom Hals

WILMINGTON, Del., Aug 31 (Reuters) - Visteon Corp VSTNQ.PK received court approval on Tuesday to exit bankruptcy, ending a 15-month fight among hedge funds, lenders and an industry giant for a piece of the revived auto parts maker.

Visteon's reorganization caps a two-year stretch in which dozens of U.S. automotive companies collapsed into bankruptcy. Chrysler, General Motors, Delphi Corp and Lear Corp (LEA.N) used Chapter 11 to remove crushing debt, shed obligations and close underutilized factories.

Visteon overcame objections by retirees and individual shareholders to win approval for its reorganization that shed more than $2 billion in debt.

The company is likely to exit bankruptcy by the end of next month, pending some negotiations with unions and its $700 million exit finance package.

The former Ford Motor Co (F.N) unit that makes air conditioning and electronics systems limped into bankruptcy in May 2009 as General Motors and Chrysler were forced into Chapter 11 by a deep recession and frozen credit markets.

Van Buren Township, Michigan-based Visteon was such a sickly case that it planned to turn over the company to lenders to satisfy the roughly $1.6 billion they were owed, but lenders were not sure they wanted it.

Visteon did not expect any recovery for bondholders, who were owed about $870 million, or shareholders.

But the company closed or sold its weaker factories and its operations recovered by 2010, along with a rebounding global auto industry.

Investors took note and began to pile into Visteon's bonds and shares. Visteon's pink sheet stock, which was worth a few pennies a share at the end of 2009, rallied to more than $2 per share in a matter of months as hedge funds built large stakes.

That touched off a fight for control of the company, with holders of secured loans, shareholders and Johnson Controls Inc (JCI.N) all angling for a slice of the revived company.

Bondholders eventually offered to put up around $1.3 billion to buy control in the reorganized company. The dozens of bondholders include Goldman Sachs Group Inc (GS.N) and hedge funds Oak Hill Advisors and Silver Point Capital.

To buy peace and bring the company out of bankruptcy as quickly as possible, bondholders agreed to provide a sliver of the company to shareholders, potentially giving them as much as 5 percent. Lenders will get paid in full, in cash.

"At the outset of the case, they (secured lenders) were not comfortable making a DIP loan and were actively considering a breakup and liquidation," said Marc Kieselstein, an attorney with Kirkland & Ellis which represents Visteon.

A DIP, or debtor-in-possession loan, funds a bankruptcy and is the first debt to be repaid, followed by secured loans.

In terms of bankruptcy, Kieselstein said Visteon "was one of the better stories."

Objections were raised on Tuesday by retirees who were unhappy about the loss of benefits and shareholders who argued large investors were getting an opportunity to buy stock in the post-bankruptcy Visteon that individual shareholders were denied.

The company plans to shed various benefits to thousands of retirees, although they will get some cash in return for reduced health insurance coverage and vested pension benefits.

The deal between bondholders and shareholders came as the parties were lining up expert witnesses and taking depositions to prepare for a bruising battle over the reorganization.

Kieselstein said the deal had come together so quickly the new owners were still forming a board of directors.

He said Mark Hogan, a former president of Canadian rival Magna International Inc MGa.TO, and Herbert Henkel, a former chief executive of Ingersoll-Rand, would join the board. Donald Stebbins, the current CEO, and Karl Krapek, would continue on the board.

The stock was trading at 54 cents a share on Tuesday, down about 3.5 percent.

The case is In re Visteon Corp, U.S. Bankruptcy Court, District of Delaware, No. 09-11786. (Reporting by Tom Hals; editing by Martha Graybow and Andre Grenon)