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

Mon Sep 17, 2012 8:46pm EDT

1 of 2. Elpida chips are seen at an electronic store in Tokyo's Akihabara district April 24, 2012.

Credit: Reuters/Toru Hanai

(Reuters) - U.S. bondholders who have been battling Elpida Memory Inc's planned sale to Micron Technology Inc revealed on Monday the bankrupt Japanese chipmaker had carried out "unauthorized" dealings involving its U.S. assets.

The bondholders made the disclosure just prior to a key court hearing at which they were scheduled to ask a U.S. bankruptcy court for greater oversight of Elpida's U.S. assets.

The hearing in Delaware's bankruptcy court in Wilmington was canceled in favor of talks with the bondholders, Elpida's attorney, Mark Collins, told reporters.

Elpida, the last of Japan's dynamic random access memory, or DRAM, chipmakers, was driven into bankruptcy by falling chip sales and foreign competition, and proposed the sale for about $2.5 billion to Boise, Idaho-based Micron as a way to repay creditors.

But holders of some of Elpida's $5.6 billion in bonds have blasted the Micron agreement as a sweetheart deal with little oversight.

The sale falls under the jurisdiction of the Tokyo District Court, which is overseeing Elpida's bankruptcy. However, Elpida asked Delaware's bankruptcy court to protect its U.S. assets from creditors under Chapter 15 of the U.S. bankruptcy code, 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.

Bondholders have opened an attack on the Micron sale through the U.S. proceeding, and are seeking a ruling from Delaware bankruptcy judge Christopher Sontchi that would place greater oversight on Elpida's U.S. assets.

They are also seeking recognition that they have the right to force Elpida's U.S. subsidiary into U.S. bankruptcy.

The disclosure of the "four unauthorized transactions" came in response to Elpida's request to file a status report under seal.

The report concerned the status of the Japanese proceedings, which according to the filing have not been made public in the Tokyo court.

The bondholders opposed the request to seal the report, saying court papers that said disclosure of the transactions was critical for "stakeholders" to understand their rights in the case.

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).

In addition to their legal challenge in Delaware, 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.

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.

The U.S. Chapter 15 case is In re Elpida Memory Inc., District of Delaware Bankruptcy Court, No. 12-10947.

(Reporting by Tom Hals in Wilmington; Editing by Daniel Magnowski)

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