UPDATE 1-SK hynix, GlobalFoundries may try to buy Elpida -source

Mon May 21, 2012 7:24am EDT

By Junko Fujita

TOKYO May 21 (Reuters) - A group of Elpida Memory bondholders opposes Micron Technology's offer to buy the bankrupt Japanese chipmaker and has reached out to South Korea's SK hynix and U.S.-based GlobalFoundries to ready a potential alternative plan, a source with direct knowledge of the matter said.

SK hynix, which had dropped out during the second and final round of bidding for Elpida, is interested in the memory chipmaker's Taipei operations, while GlobalFoundries is interested in its Hiroshima operations, said the source, who asked not to be identified.

Although the talks are still very preliminary, if SK hynix and GlobalFoundries agree to pay a price that satisfies bondholders, the group may file a rival restructuring plan for Elpida to the Tokyo district court in hopes of starting a new round of bidding, the person said.

The submission of an alternative plan, which is highly unusual in bankruptcy cases in Japan, would require the approval of the court before it could be put to a vote of Elpida's debt holders, including its banks.

"Bondholders don't want to see Elpida's estate lose value to Micron, so there are talks ongoing with other industry players for the possible sale of Elpida's businesses in separate transactions," said the person.

"The two sales might just produce more than what could be achieved from a single sale to a single buyer."

A Seoul-based spokesman for SK hynix said the company was not in talks with the debt holders.

The bond holders' action comes as foreign high-yield debt investors have become more willing to look for opportunities in Japan's corporate distressed bonds at a time of low defaults in the United States.

"The problem with buying distressed bonds in Japan is that the system does not typically use a debt-to-equity swap, which is the norm in the U.S. system," said Kevin Starke, a senior analyst at CRT Capital Group in Connecticut.

Converting bond debt to equity makes it easier to value a distressed company, he said.

In Japan most in-court restructurings use the sponsor method, where a third party invests new capital in the failed company. It is difficult to estimate the relationship between how much the sponsor invests and how much the old bondholder can recover.

U.S.-based Micron won the right to negotiate exclusively to buy Elpida, Japan's sole maker of dynamic random-access memory (DRAM) chips, with a bid that a source with direct knowledge of the deal said was worth 200 billion yen ($2.5 billion).

Elpida, which is trying to stay in business after failing in February with 448 billion yen in liabilities, Japan's biggest ever bankruptcy by a manufacturer, chose Micron as its preferred investor early this month.

TPG Capital LP and China's Hony Capital also presented a joint bid in the final round of bidding.

The group of bondholders had said a Micron proposal reported in Japanese media before the final round of bidding worth 150 billion yen was too low. The bondholders did not identify themselves in a filing to a U.S. court.